H&M falls short of quar­terly sales tar­gets

The Gulf Today - Business - - 4international -

Chief ex­ec­u­tive of world’s sec­ond largest fash­ion re­tailer says hefty sum­mer dis­counts re­duce quar­terly profit by 20 per cent

STOCK­HOLM: Swedish fast fash­ion gi­ant Hennes and Mau­ritz (H&M) is fall­ing short of its sales tar­gets. Chief of the world’s sec­ond largest fash­ion re­tailer warned af­ter hefty sum­mer dis­counts re­duced quar­terly profit by 20 per cent.

H&M faces ris­ing com­pe­ti­tion in its core Euro­pean bud­get fash­ion mar­ket in­clud­ing from young shop­pers de­fect­ing to on­line re­tail­ers such as Asos and Za­lando.

“The fash­ion re­tail sec­tor is grow­ing and is in a pe­riod of ex­ten­sive and rapid change as a re­sult of on­go­ing dig­i­tal­i­sa­tion,” CEO Karl-jo­han Pers­son said in a state­ment.

“Our grow­ing on­line sales did not fully com­pen­sate for re­duced foot­fall to stores in sev­eral of our es­tab­lished mar­kets, which has re­sulted in our to­tal sales de­vel­op­ment not reach­ing our tar­gets so far this year.”

It will trim its tar­get for net store open­ings this year to 385 from around 400, it added, hav­ing added 418 in the 12 months to the end of Au­gust for a to­tal of 4,553 world­wide.

H&M of­fered deeper sum­mer dis­counts to clear in­ven­tory this year, squeez­ing its gross mar­gin to 51.4 per cent from 54 per cent a year ear­lier, yet lev­els of left­over gar­ments still grew in the quar­ter to the end of Au­gust.

Shares in the sec­ond-big­gest ap­parel re­tailer af­ter Zara owner In­di­tex were down 5.6 per cent.

H&M is look­ing for long-term growth by branch­ing out into new and higher-end brands, with AR­KET the most re­cent ad­di­tion, although 9 out of 10 stores are H&m-branded. It has also started in­vest­ing in tech star­tups in search of fresh ideas. In the short term, an­a­lysts say it is key that H&M speed up the in­te­gra­tion of stores and on­line, and im­prove its de­liv­ery ser­vices, some­thing that is costly for a low-mar­gin brand.

“What should H&M do? In­vest faster and more heav­ily in on­line ser­vice, which could hurt the mar­gin? Or go more slowly, and risk dam­ag­ing sales?,” said So­ci­ete Gen­erale an­a­lyst Anne Critchlow, who has a “sell” rec­om­men­da­tion on H&M’S shares.

“H&M has in­no­va­tive and am­bi­tious man­age­ment, but there are chal­leng­ing times ahead for value fash­ion re­tail­ers.”

The com­pany is test­ing clickand-col­lect in Bri­tain, and rolling out faster de­liv­ery op­tions, on­line re­turns in stores and mo­bile pay­ments in some mar­kets.

It said that af­ter a good start, sales in Septem­ber slowed some­what to­wards the end of the month.

H&M also said it had short­ened lead times on many prod­ucts which, to­gether with more in-sea­son pur­chases, would help lower in­ven­tory lev­els in fu­ture.

“We ex­pect some short term sales dis­rup­tion from the need to clear ex­cess in­ven­tory, (but) we ex­pect sales and gross mar­gin trends to im­prove next year due to on­line im­prove­ments and a firmer re­cent euro trend ver­sus the US dol­lar,” said RBC an­a­lyst Richard Cham­ber­lain, who holds an “out­per­form” rat­ing on the stock.

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