PARIS – Hennes & Mauritz AB said net profit halved in the first quarter as its gross margin came under pressure from markdowns, ongoing investments and a strong Swedish krona.
Net income in the three months ended Feb. 28 totaled 579 million Swedish kronor, or $57.7 million, down 53 percent from 1.23 billion kronor during the same period a year earlier. This was sharply below a consensus forecast of 1.28 billion kronor, according to a FactSet poll of analysts.
H&M’s gross margin, a key indicator of profitability, narrowed to 49.1 percent from 51.5 percent.
The high-street retailer posted a 3 percent increase in first-quarter sales to 55.33 billion kronor, or $5.47 billion, in the Dec. 1 to Feb. 28 period. In local currency terms, sales were up 2 percent in the quarter, with around 3 percent fewer stores compared with the previous year, it said Wednesday.
The group expects sales in March to rise 1 percent in local currency terms.
“Although we have made important progress in our plan and have good cost control, our sales and earnings in the quarter were somewhat weaker than planned – but the first quarter is the smallest quarter of the year for us in terms of sales and margin, and we are confident going forward,” chief executive officer Daniel Ervér said in a statement.
“Profitability in the quarter was negatively impacted by a weaker gross margin, which in turn was affected by negative external factors, increased markdowns and investments in the customer offering,” he added.
“We estimate that the overall negative effect of these will already be significantly smaller in the second quarter than in the first quarter,” Ervér said.
He reported positive sales trends in western, southern and eastern Europe, particularly Germany and Poland. Online sales also progressed as the fast fashion giant rolled out its upgraded e-commerce platform to more markets.
Meanwhile, H&M continued to close underperforming stores, shuttering 40 locations during the period.
“Our main priorities are a strengthened product offering, a more inspiring shopping experience and a stronger brand. Through this we create the conditions for long-term, profitable and sustainable growth”, Ervér said.
