H&M on track in Q1 as international ops shine, Q2 starts well

By

Sandra Halliday

Published
Mar 29, 2019

H&M’s net profits fell in Q1 but the drop wasn’t as big as analysts had been predicting and with its sales rising during the period and other good news, the general consensus was that the company is managing its turnaround reasonably well.

On Friday, the company said that the three months to the end of February saw net sales rising by 10% to SEK51.015 billion (€4.89bn/£4.2bn), although that was helped by currency effects. In local currencies, the increase was only 4%. However, in two important pieces of good news, it added that the quarter’s sales were dented by a one-off effect that should mean stronger sales in future and that Q2 has started well.

Basically, Q1 was impacted by the online platform in Germany having been “successfully replaced during the quarter.” It said that “to secure a smooth and well-executed transition, local sales activities were restrained – which had a dampening effect on sales.” So adjusted for Germany’s online sales, the group’s total net sales increase would have been 6% in local currencies. The change in Germany also means that it should now see faster and more flexible online ops with better integration between its physical stores and the online store and that should help drive sales even higher.  

And the other piece of positive news was that net sales at the start of Q2, from March 1 to March 27, have risen 7% in local currencies, so there’s clearly a steady improvement being seen.

Back with Q1, gross profit rose 11% to SEK 25.526 billion, corresponding to a higher gross margin of 50%, up from 49.9% a year ago. But net profit fell to SEK 803 million from SEK1.3702 billion, having been positively affected by one-off SEK399 million boost a year ago as a result of US tax reform.

CEO Karl-Johan Persson was upbeat on Friday and highlighted the company’s strength in certain key countries. “Our ongoing transformation work has contributed to stronger collections with increased full-price sales, lower markdowns and increased market shares,” he said. "Sales developed well both in stores and online in many markets, including Sweden which grew by 11%, the UK by 8%, Poland by 15%, China by 16% and India by 42% in local currencies.”

And the retail giant is working hard to make its overall offer more attractive to fashion shoppers who are undeniably cautious at present. It has a number of initiatives under way and said its loyalty programme that now has 35 million members will see an upgraded version being launched shortly.

H&M will also be launched on Myntra and Jabong, India’s largest e-commerce marketplaces, later this year, which makes good commercial sense given that sales rise it saw in the country.

And its online and physical stores are being increasingly integrated, while the global roll-out of online stores continues. Today H&M online is available in 47 markets, and during 2019 Mexico will be added, as well as Egypt that will open via a franchise.

This year, the group is planning to open 175 new stores (net), mostly in growth markets, although the number of H&M stores in Europe is expected to reduce by 50.

H&M also said that its supply chain will be” even faster, more flexible and more efficient,” and it highlighted “initiatives within advanced data analytics and AI.”