H&M discounting squeezes profits
MARKDOWNS at fashion chain H&M are squeezing profitability, prompting the Swedish retailer to step up investments in e-commerce and new brands in an expensive quest for new sources of growth that’s weighing on its shares.
H&M shares fell as much as 6.3pc early yesterday in Stockholm after the company reported a 20pc drop in third-quarter pre-tax profit.
The results were in line with expectations, but the apparel chain’s persistently high inventory levels have added to concerns over the health of its physical stores.
H&M plans to introduce another new brand next year after recently opening stores under the Arket name.
The company said it’s also expanding online sales to additional markets after summer markdowns hit profit margins in the third quarter.
Growing online sales did not offset “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,” H&M Ceo Karl-Johan Persson said in a statement.
Arket, with slightly more expensive utilitarian fashion than the company’s core stores, has helped the retailer to diversify after it had previously added names like Cos and & Other Stories.
The new brand has had a “successful reception” in London, as well as online, H&M said.
The gross margin of 51.4pc slightly missed estimates of 51.5 pc.
Markdowns in relation to sales rose 2.8 percentage points in the third quarter, compared with a year earlier. (Bloomberg)