H&M profit falls, says hot weather kept sales nearly unchanged in September

Fashion retailer Hennes & Mauritz reported a bigger than expected fall in quarterly profits on Friday and said sales growth at the start of the current quarter in September had slowed due to unexpectedly warm weather.

Dented by currency translation effects, markdowns on prices after unusually hot weather deterred shoppers, and higher long-term investment spending, pretax profit in the three months ended Aug. 31 fell 10 percent to 6.3 billion crowns ($735 million). Analysts polled by Reuters had expected an 8 percent fall.

The Swedish firm has long seen its margins under pressure as a strong U.S. dollar has kept purchasing costs high and it has had to make large investments in e-commerce technology and new concepts to keep pace with new consumer patterns and new competition, while sales growth has slowed.

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However, the company which pays for its clothing mainly in Asia in U.S. dollars and makes the bulk of its sales in euros, said again on Friday that purchasing costs were expected to ease to become "somewhat negative" in the fourth quarter, and that the pace of growth in investment spending was starting to slow.

"(We have) a positive view of our opportunities for 2017 and going forward, both in terms of sales and profitability," Chief Executive Karl-Johan Persson said.

Nevertheless the company also said that in September, the first month of its fourth quarter, local-currency sales were probably up a mere 1 percent, the slowest pace in a year.

H&M’s only bigger rival, Zara owner Inditex, has been able to outperform H&M in part because it has its own production operation that enables it to react more quickly to changes in demand and which leaves it less exposed to currency swings.

H&M said the unexpectedly weak demand in the summer contributed to higher inventories than expected at the beginning of September and it therefore saw a risk of increased markdowns in the current quarter.

However, the company said it still planned to launch two new separate concepts next year.

$1 = 8.5766 Swedish crowns