Sweden’s H&M disappointed investors with a 10% tumble in quarterly profit. The world’s second-largest fashion retailer blamed investment aimed at boosting its online business for the decline.
Profit fell for the third straight year in 2018, because of competition from the likes of Zara, Primark, and Asos, and as the shift to online shopping hit trading at its core budget stores.
“It has been a challenging year for H&M group and the industry, but after a difficult first half, there are signs the company’s transformation efforts are beginning to take effect,” chief executive, Karl-Johan Persson, said.
H&M has invested heavily in logistics and digital technology and is reviewing its mix of stores and brands, while also working on a new H&M store concept.
H&M spent around 450m Swedish crowns (€43.4m) on logistics and technology in the last three months of its financial year, including resolving problems it flagged earlier in 2018 and switching to a new online platform in its biggest market, Germany.
- said RBC Europe analyst, Richard Chamberlain.
Shares in the Swedish company eased, but are up by over 5% in the past year.
Pre-tax profit for September-November shrank for the sixth straight quarter to 4.4bn crowns.
That was down from 4.9bn crowns a year earlier and well below analysts’ mean forecast in a poll for an increase to 5.1bn crowns.
Mr Persson said improved collections generated better full-price sales and lower markdowns towards the end of 2018, predicting markdowns should be down around one percentage point in the first quarter, while inventories should also fall.
The company said it planned to add a net 175 stores in 2019, with almost half of them to be newer fashion brands, like Cos, Arket, and Weekday, as part of its drive to mimic the success of Inditex by targeting multiple sub-sections of the market.
H&M hopes that recent heavy investment will eventually drive a recovery in profitability and said that it will trim capital spending in 2019.