H&M warns over further drop in sales as it focuses online

High street fashion giant H&M has said it is braced for further sales falls across its stores in 2018, but hopes an online push and investment in new brands will deliver a "somewhat better result" than last year.

In a move to reassure worried investors, H&M said it expects a 25% surge in sales online and from its new brands such as COS and H&M Home this year, while it expects stores to return to like-for-like sales growth from 2019 onwards.

The group said it is hoping for higher earnings this year and "good increases in profit" from 2019 onwards as it overhauls the business.

The comments came ahead of H&M's first capital markets day briefing for investors after it admitted last month it made "mistakes" and revealed fourth-quarter profits slumped by more than a third.

H&M has seen its shares nearly halve in value over the past three years as it has struggled to keep up with the shift towards online shopping and increased competition.

It said late last month that store sales had been knocked hard by the switch online, leaving it with a lot of markdowns to shift unsold stock.

But in an effort to soothe investor concerns, it outlined its turnaround plans focused on boosting online sales and returning bricks and mortar stores to growth.

It said: "2018 is expected to remain challenging. H&M's sales in comparable stores are expected to remain negative with a gradual improvement during the year."

Earnings at the beginning of the year will be hit by hefty markdowns, but H&M said this will be offset by the expected boost from online business and new brands, with around another 4% added to group sales from new stores.

"Overall, it is assessed that there are good opportunities for a somewhat better result for the full year compared with the previous year," H&M added.

After the 25% surge in online sales this year, they are set to rise by around 20% a year from 2019 to reach 75 billion Swedish krona (€7.5bn) in 2022.

Sales for its new brands are expected to continue rising by at least 25% a year over the next five years to hit 50 billion Swedish krona (€5bn).

H&M added: "The ongoing shift from physical stores to online is expected to continue.

"As the H&M group's transition work and initiatives take effect, the physical stores are expected to return to comparable positive sales development from 2019 onwards, and with considerably lower price markdowns relative to sales compared with 2017.

"Overall, this is expected to lead to good increases in profit."

H&M's recent full-year results showed pre-tax profits fell 13% to 20.8 billion Swedish krona (€2.1bn) after sales rose by a weaker-than-expected 4%.

Sales fell 4% in a disappointing fourth quarter, with the UK seeing a 5% fall in local currencies.

The Swedish firm - the world's second-biggest clothes group after Zara owner Inditex - has more than 290 stores in the UK.

It said recently it would open around 390 new stores globally in 2018, but added it would shut about 170 shops in other areas as part of a constant review of its global estate.

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