H&M cuts expansion plans after new profit drop

For the eighth quarter in a row, Swedish fashion chain H&M is reporting a decreasing profit, despite having achieved turnover growth. Management is now forced to take measures: there will be far fewer new stores than originally planned.

Turnover and marketshare grow

First the good news: H&M sold more products at full price, did not have to discount as much and saw its market share increase, which shows “that customers appreciate our collections and the improvements we are making to the product assortment and the customer experience”, CEO Karl-Johan Persson says. “Sales developed well in most markets. We had strongest growth in countries such as the US where we grew sales by 17 %, in Mexico by 25 %, in India by 39 %, in Russia by 19 % and in Poland by 11 % in local currencies. We also grew in the UK and Sweden where we took market share despite challenging market conditions.”

H&M therefore saw its quarterly turnover grow 11 % to 57.474 billion crowns (roughly 5.5 billion euros). Excluding exchange rate fluctuations, that growth would still be 6 %. Online sales are also going very well: + 27 % in Swedish crowns (+ 20 % in local currency).

45 store openings cancelled

Less positive news came from the profit front, as that decreased by 1.3 % to 5.93 billion crowns (550 million euros), whereas analysts had been hoping for 6 billion crowns. “As customer satisfaction and sales increase, the group has intensified its transformation work even further, which had a dampening effect on earnings development.” In other words: it takes money to make money. Meanwhile, stocks increased by 4 % in local currency: it now represents 18.3 % of sales across 12 months, according to the calculations of KBC analysts.

As a result, H&M is making some downward adjustments to its expansion plans: “The net addition of new stores for full-year 2019 will therefore be around 130, which is 45 fewer than previously communicated,” states the head office. “The company is accelerating its adaptation to customers’ changed shopping patterns and has therefore revised the number of new stores downwards in favour of even more digital investments.” 

H&M has announced the opening of web shops in Thailand, Indonesia and Egypt in the second half of the year. Meanwhile, the group will be collaborating with internet platforms such as Chinese Tmall and Indian Myntra.