H&M profit hit by expansion costs

STOCKHOLM: Swedish clothing retailer H&M posted a 6.6-percent rise in annual net profit but said results had been hit by costs for its long-term investments as well as by currency factors.
The cheap-and-chic fashion giant said its net profit rose to 16.9 billion kronor ($ 2.7 billion, 2.0 billion euros) in 2012 from 15.8 billion kronor in the previous year, and that it increased its market share despite a difficult operating environment.
Gross sales by the firm, world’s number two clothing retailer after the Spanish Zara group, rose by 9.4 percent to 141 billion kronor in the financial year that ended November 30, but net sales measured at constant exchange rates gained only one percent, the company said.
“H&M continues to stand strong in a challenging clothing market which in many countries has been even more challenging in 2012 compared to 2011,” CEO Karl-Johan Persson said in a statement.
In the fourth quarter, net profit fell 1.3 percent to 5.29 billion kronor ($ 830 million), beating a 5.09 billion kronor consensus estimate compiled by Dow Jones Newswires.
H&M said its expansion moved faster than expected in 2012, with 304 new stores opening their doors, mainly in China and the US.
It proposed holding the dividend steady at 9.5 kronor per share.
“On the whole, these results are on the weak side,” said Soeren Lundtoft Hansen, an analyst at Sydbank.
Investment costs for expanding online and mobile sales, as well as for a new, high end fashion brand for women, were higher than expected, he added.
The new brand, & Other Stories, will open its first stores in the coming months in seven European countries.
The company said it plans to open 325 stores in this financial year, including in Chile and in Indonesia via a franchise.
“This is a positive development at a time when same store sales, in my view, will remain subdued amid continued weak consumer spending and strong competition in H&M’s market segment,” Lundtoft Hansen said.
The Stockholm-based company currently has 2,800 stores in 48 markets and more than 104,000 employees.
Chief executive Persson said that despite not yet generating revenue the company believed its long-term investments “to be both necessary and wise as they aim to secure future expansion and profits and thereby further strengthen H&M’s position.”
“We have the greatest respect for the macroeconomic climate and how it may affect the consumption in many of our markets, but we have a strong belief in our offering and are convinced that H&M will continue to maintain its strong position,” he said.
Shares in the company were hit by weaker than expected sales in January, which the company attributed to cold weather in many of its European markets.
In mid-morning trading, the stock was down 2.72 percent on the Stockholm stock market, which was trading 0.49 percent higher.