FASHION FORWARD
Cost-cutting, e-commerce efforts pay off for H&M,
JOHANNESBURG— Cost-control is the new watchword at Hennes & Mauritz AB as the European fashion giant seeks to compensate for slowing sales growth, rising inventories and dwindling profitability.
The Swedish retailer on Thursday posted second-quarter earnings that exceeded analyst estimates, with the company’s efforts to contain expenses making the difference. Contending with a growing backlog of unsold clothing that will require greater markdowns, H&M trimmed its store-opening target and set a goal for online sales growth of at least 25 per cent a year.
“The company has aggressively controlled operating costs,” Caroline Gulliver, an analyst at Jefferies, said in a note.
“This is a marked change from H&M’s inability to cut like-for-like costs in the past.”
Investors have seen the value of their holdings dwindle as the company struggled to keep pace with competitors such as Zara owner Inditex SA, which has put a greater emphasis on e-commerce and has proved more adept at responding to shifts in consumer tastes.
The retailer said second-quarter operating costs rose about 8 per cent from a year earlier, less than analyst estimates that mostly exceeded 10 per cent. The difference probably reflected lower selling volumes and reduced long-term investments, RBC analysts said.
“Given that foreign exchange added 4 per cent to the cost base and the store count is up10 per cent, we think this is impressive cost control,” Morgan Stanley’s Geoff Ruddell said in a note.
H&M reduced its store opening guidance for the year to 400 net outlets from 430, while placing greater emphasis on e-commerce. The retailer, which has online operations in 41 markets, said it will add such services in the Philippines and Cyprus this year and in India in 2018. For most analysts, that advance can’t come soon enough.
“H&M urgently needs to be a fully digital multi-channel retailer,” Raymond James’s Cedric Lecasble said in a note.
Online expansion helped offset an increase in inventory that H&M said it plans to clear by marking down prices this summer more than last year.
Investors have seen the value of their holdings dwindle as the company struggled to keep pace with competitors such as Zara owner Inditex