Dollar and winter nibble at H&M's profit

In its first quarter of fiscal year 2015/2016, Swedish clothing group H&M‘s net profit dropped due to higher purchase costs and a difficult sales period.

Turnover grew 8.5 %

From December 2015 to February 2016, H&M sold 43.691 billion Swedish crowns’ worth of clothing, up 8.5 % compared to the same period in its previous fiscal year. CEO Karl-Johan Persson reflected on “slightly disappointing results” however, as a warm winter left many warm outfits in stores over the past few months.

The weather was not the only downside for H&M with the expensive dollar also causing havoc. The Swedish company’s purchase costs soared because of the dollar, an effect that will remain for all of its clothing purchases in the second quarter as well. By the fourth quarter, the effect should have dissipated. Most of H&M’s clothing is manufactured in Asia, where contracts are handled in dollars.

That meant the company’s profitability dropped: gross margins dropped from 55.2 % last year to 52 % now. When looking at the net profit, that meant a drop from 3.613 billion crown (390 million euro) to 2.545 billion crowns (275 million euro).

By the end of February, the H&M group had 3,970 stores worldwide, with 3,650 H&M stores, 159 COS stores, 106 Monk stores, 31 & Other Stories stores, 19 Weekday stores and 5 Cheap Monday stores. The 4,000th store will open its doors in the Indian capital New Delhi, in the Mall of India, later this month. The Swedish group entered the Indian market only last year, but says things have been going well over there.