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H&M shares slump on back of 60% drop in profits

Lauretta Roberts
28 March 2018

Shares in Swedish fashion giant H&M dropped to a 10-year low yesterday as the business revealed a 60% slump in profits for the three months to 28 February.

Profits for the quarter were down 60% year-on-year at SEK1.6bn, which was also short of analysts' expectations. Sales for the group were down slightly at SEK53.6bn (prior year SEK54.4bn), while gross margin was down to 49.9% from 52.1%.

The group admitted that "imbalances" in its product assortment, along with weak demand in the prior quarter, had led to the need for heavy discounting and clearance sales it the first quarter. Unusually cold weather and the business's need to up its digital game have also hit its performance.

CEO Karl-Johann Persson said: “The rapid transformation of the fashion retail sector continues. As communicated previously, the start of the year has been tough. 2018 is a transitional year for the H&M group, as we accelerate our transformation so that we can take advantage of the opportunities generated by rapid digitalisation.

"Weak sales in the forth quarter, partly caused by imbalances in the assortment for the H&M brand, resulted in the need for substantial clearance sales in the first quarter. The high level of clearance sales combined with unusually cold winter weather had a negative impact on the sales of the spring garments. In the first quarter the H&M group’s sales were unchanged in local currencies."

Persson said the business, which also owns the COS, Weekday, Arket, & Other Stories, and Monki fascias, was focused on a number of initiatives such as: improving its product assortment; innovating with its store formats; enhancing its online offer; and seamlessly integrating retail and etail.

It is also introducing efficiencies into its supply chain, investing in new technology (such as AI), and investing in new stores for existing brands as well as introducing new concepts and business models. It recently confirmed that it would be opening an off-price online platform and retail stores for H&M brands, as well as third party brands, called Afound and is working on a new label for millennials called /Nyden that will sell online and via pop-up events only.

Despite the tough start to the year, Persson said the business was holding its forecast for the rest of 2018. "Our assessment remains that sales for online and New Business will grow by more than 25% during the year, and that the H&M group will achieve a somewhat better result for full-year 2018 compared with the previous year. We take a long-term view that together with our knowledge and experience enable us to navigate through times such as this," he said.

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