H&M Profits Plummet In First Quarter

PARIS — Battered by higher purchasing costs due to the strong dollar and markdowns to clear excess stock of coats and other winter apparel, Hennes & Mauritz AB reported net profit plummeted 29.6 percent in the first quarter.

Net income in the three months ended Feb. 29 came to 2.54 billion Swedish krona, or $299 million. H&M’s gross margin, a key indicator of profitability, narrowed to 52.0 percent from 55.2 percent during the same period a year earlier.

The Swedish retailer posted an 8 percent increase in first-quarter sales, as reported.

Sales including VAT converted into Swedish krona totaled 50.6 billion kronor, or $5.9 billion, in the Dec. 1 to Feb. 29 period. In local currency terms, sales including VAT rose by 9 percent in the quarter, the retailer said. Excluding VAT, sales totaled 43.7 billion kronor, or $5.1 billion, up 8.5 percent. All dollar rates are calculated at average exchange rates for the period concerned.

Group sales including VAT rose 2 percent in March in local currencies.

Karl-Johan Persson, chief executive officer of H&M, said first-quarter sales were “slightly below plan” but should be viewed in light of a very strong first quarter in 2015.

“Profits in this year’s first quarter have been negatively affected by a continued very negative U.S.-dollar effect which made our purchasing much more expensive, as well as by increased markdowns due to larger volumes of winter garments that remained as a result of the warm autumn,” he said.

“The negative dollar effect continues for purchases made for the second quarter of 2016, although the negative effect has begun to gradually decrease due to the start of the annualization of last year’s strong U.S.-dollar exchange rate,” Persson added.

“Should today’s exchange rates continue, the effect of the U.S. dollar on purchasing coasts for the fourth quarter will be neutral or slightly positive compared to the corresponding quarter the previous year,” he said.

Persson said the group’s strong expansion would continue as it prepares to enter New Zealand, Cyprus and Puerto Rico this year. H&M plans to add 425 new stores in the 2015-16 financial year and is set to cross the threshold of 4,000 stores with its planned opening in the Mall of India in New Delhi in April.

The retailer reported “very satisfactory” sales and profit development for its online activities. This year, it plans to launch e-commerce in Japan, Greece, Canada and South Korea, meaning a total of 11 online markets will be added in 2016.

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