Stockholm - Hennes & Mauritz provided some
much-needed good news for Europe’s struggling clothing retail market, reporting
profit that topped estimates and setting a new annual growth target.
After missing estimates for five of the previous six
quarters, H&M said fourth-quarter pretax earnings rose to 7.41 billion
kronor ($839 million), exceeding the 7.04 billion-kronor average estimate. A
previous target of increasing store numbers by 10 percent to 15 percent a year
will instead become a sales target that includes both stores and online revenue.
The results provide a lift for Europe’s apparel retailers
after a year when unseasonable weather patterns, changing consumer priorities
and the strength of the dollar all created challenges. H&M also
said sales growth accelerated in January, sending its shares up as much as
6.2 percent in Stockholm. Spanish rival Inditex, owner of the Zara chain, also
gained.
The better-than-expected profit shows that pressures
caused by the dollar’s strength and promotional activity are starting to ease,
according to Berenberg analysts. Getting 80 percent of its product from Asia,
H&M has endured cost pressure because many currencies in the region are
linked to the greenback.
Fourth-quarter gross margins of 57 percent were down
on last year’s 57.5 percent, though above the average estimate of 56.6 percent.
Looking ahead, the retailer said it expects a slightly
negative effect on purchasing costs due to inflation and currencies in the
first quarter. Still, profit this year is set to be helped by a gradual
reduction in the pace of investment on new brands and online shopping.
Sales in the first 29 days of January rose 11 percent at
constant currency rates, H&M also said Tuesday, an acceleration from
December’s 6 percent.
New brands
The company said it plans to add 430 stores this year, of
which about 70 or 80 will be other brands than H&M, such as the COS, Monki
and Weekday banners. The retailer will review its existing locations and plans
to close some shops.
H&M plans to add one or two new brands this year, and
it’s possible that a brand at some point in the future could be offered
exclusively online, Chief Executive Officer Karl-Johan Persson said in an
options such as next-day shipments, currently offered in five markets, and
time-slot deliveries available in Japan. The move is an attempt to get products
to customers faster, an area where H&M needs to catch up with speedier
rivals like Zara.
“Competitors were probably making the same type of
commentary two or three years ago,” Tony Shiret, an analyst at Haitong