H&M sees growth in online sales lifting earnings this year

A woman shops at an H&M store in New York City. The retailer is seeing a pickup in online sales. (Reuters)
Updated 14 February 2018
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H&M sees growth in online sales lifting earnings this year

STOCKHOLM: Sweden's H&M expects earnings to grow this year as rising online sales offset weakness in its physical stores, it said on Wednesday at its first ever day of investor briefings held to assuage concerns over future strategy.
Shares in the world's second-biggest fashion retailer reacted positively and were up 2.5 percent at 145.22 Swedish crowns by 0727 GMT, compared with a 0.7 percent firmer European retail sector.
The company, a rival globally to Zara-owner Inditex , forecast growth of at least 25 percent in online sales and in its new brands such as COS and H&M Home in 2018, but said sales from its existing stores would continue to fall, noting high stock levels.
H&M has in recent years seen sales growth stall as it struggles to keep up with shoppers moving online, and fend off competition in its core budget segment. Inditex has consistently outperformed its Swedish rival in that time, helped by having a faster and more flexible supply chain and by moving faster into e-commerce.
In a statement ahead of its capital markets day for analysts and investors, H&M said it expected a "somewhat better" result for the 2017/18 financial year.
Analyst John Hernander at Nordea, a top-ten H&M shareholder, said: "The market expects lower earnings for 2018, so if H&M instead delivers on its target of a somewhat higher profit and turns the negative estimate revision trend, the stock will also turn."
Shares in H&M, which is controlled by the Persson family, have slid for three straight years, shedding more than half their value from a record high in March 2015 amid mounting scepticism the company has a viable turnaround plan.
H&M said it expects online sales to reach 75 billion crowns ($9.4 billion) in 2022, up from 29 billion in 2016/17, and new brands to achieve sales of 50 billion in 2022, up from 17 billion in 2016/17.
"Overall, this is expected to lead to good increases in profit," CEO Karl-Johan Persson said.
The group said its online channel accounted for 12.5 percent of total sales in 2016/17, but 22 percent of operating profit.
H&M, which has said it will close some stores in mature markets in regions such as Europe, said it expected newly opened stores to increase sales for the group by between 1 and 3 percent in the 2019 to 2022 period.
It also held out the prospect of additional growth from two "completely new business models" it is working on, without elaborating.
Earlier this week the retailer dropped plans to ask shareholders to reinvest their dividend payout in new H&M shares, saying this would have been too difficult to carry out.
The original proposal, supported by the Persson family, took markets by surprise and played a part in sending the battered stock down to its lowest level since 2008 when announced late last month.


Can Lebanon’s next government rise to the economic challenge?

Updated 34 sec ago
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Can Lebanon’s next government rise to the economic challenge?

BEIRUT: After Lebanon’s first parliamentary election in nine years, the dire economic situation and unsustainable public debt levels are top priorities for the next government.
Before the May 6 vote, leaders from across the deeply divided political establishment sounded the alarm about the state’s finances and economy.
They agree a new government, which is expected to contain the main parties, must be formed quickly, although wrangling over cabinet portfolios could take time, even months.
“The risk is if they really don’t form a government and don’t make any headway with policy in the remainder of this year,” Toby Iles of ratings agency Fitch said.
WHY THE URGENCY?
Lebanon is the world’s third-most indebted nation with a debt-to-GDP ratio of more than 150 percent. It climbed from around 130 percent in 2011, before war in neighboring Syria, and the arrival of more than a million refugees, depressed growth and paralyzed government decision-making.
The International Monetary Fund has said Lebanon’s debt trajectory is unsustainable and needs immediate action, otherwise debt-to-GDP could hit 180 percent by 2023.
Annual growth rates have fallen to between 1 and 2 percent, from between 8 and 10 percent in the four years before the Syrian war. Two former pillars of the economy, Gulf Arab tourism and high-end real estate, have suffered.
Outgoing Prime Minister Saad Al-Hariri has said the unemployment rate exceeds 30 percent and UNDP says the number of people in poverty has risen by nearly two-thirds since 2011.
“I believe everyone has realized now that the ship might sink with everyone aboard,” leading Christian politician Samir Geagea said in a recent interview, describing the economic risks.
HOW HAS LEBANON MUDDLED THROUGH THIS LONG?
Absent an effective government, the central bank has for years maintained stability using stimulus packages and unorthodox financial operations, made possible by the billions of dollars deposited into Lebanese banks by the large diaspora.
Attracted by high interest rates and confidence in the country’s resilience and banks, diaspora deposits have helped Lebanon’s finances survive shocks including the assassination of Rafik Al-Hariri — Saad’s father — and conflicts between Hezbollah and Israel.
But the risk of an increasing dependence on remittances became clear in November when Saad Al-Hariri resigned unexpectedly. Some Lebanese moved their money out of local currency or overseas.
Central bank foreign assets fell by $1.6 billion that month as it defended the Lebanese pound’s peg to the dollar, according to released data. The crisis was short-lived, but the increasingly poor state of national finances has increased the risk that Lebanon might not weather a larger shock so well.
The quicker the government is formed and gets to work, the more support this gives to vital financial inflows.
Despite losing more than a third of his MPs, Hariri is expected to lead the next government.
Central bank policies have kept growth ticking over and foreign reserves high, but they have increased risk in the financial system. The central bank and IMF say such policies should not continue long-term and government policymaking needs to step in.
The finance ministry has met its foreign currency financing needs for 2018 through a $5.5 billion debt swap with the central bank. The transaction will reduce debt-servicing costs and boost central bank reserves, the government said.
WHAT NEXT?
Sectarian politics and corruption have for years stalled reforms needed to boost growth and bring down debt. International donors want to see reforms to release more than $11 billion of investment pledged in April to boost the economy.
“It will be extremely challenging for the next Lebanese government to live up to these reforms. We know how hard it is to change the way things work here, and addressing the vested interests is hard. But there is no alternative way forward,” a western diplomat said.
Beirut hailed the money pledged in Paris as a sign of confidence in the government.
Donors want to preserve stability as war drags on in Syria, but say assistance depends on Beirut working to a credible economic plan and under international oversight to ensure reforms happen.
“We are going to be tough on this and I don’t see anyone else being less tough,” another western diplomat said.
In Paris, Hariri promised to reduce the budget deficit as a percentage of GDP by 5 percent over five years.
Reforming the subsidised power sector, widely seen as deeply corrupt, would be a big help.
Last year the government spent $1.3 billion subsiding the state power provider — 13 percent of primary expenditures. Meanwhile, most homes depend on expensive private generators because state provision is so patchy.
Hariri has led calls for reform since a years-long political deadlock was broken at the end of 2016 and parliament began to take decisions such as launching an offshore oil and gas exploration and passing the first government budget since 2005.