Swedish fashion retailer H&M, the world’s No 2 clothes retailer which has over 20 Irish outlets, said it is increasing markdowns after accumulating a record pile of unsold garments worth more than €3.2bn.
Operating profit fell 62% to the lowest level in more than a decade as clearance sales failed to reduce piles of T-shirts and jeans that customers had passed over.
The shares slumped to the lowest level since 2005.
H&M’s already-downbeat forecast for the start of 2018 was exacerbated by unseasonably warm European weather followed by February’s cold snap, whipsawing the clothing retail industry.
That forced the company to slash prices even more.
Chief executive Karl-Johan Persson said it made mistakes by narrowing its assortment last year, though he expects sales to improve.
He said H&M plans to reduce markdowns in the second half, also helped by a weaker dollar which will reduce garment costs. The retailer aims to reduce inventory to 12% to 14% of sales in 2019. Stock-in-trade rose to 18% of sales in the first quarter.
H&M said most of that is spring garments, though a small portion is older than 12 months. “We haven’t improved fast enough,” said the 43-year-old scion of the billionaire Persson family. “We’re working hard to fix that,” he said.
The retailer is starting a new brand called Afound to sell clothes from various brands including H&M at a discount, and it’s adding three automated logistics centers this year to speed up deliveries.
Last month, H&M forecast sales in comparable stores to drop this year before returning to growth in fiscal 2019.
And Mr Persson reiterated H&M’s forecast for some improvement in operating profit this year. Analysts expect a 7% drop.
“The next 12-18 months will be challenging,” wrote Alvira Rao at Barclays.
H&M said it’s maintaining its targets for sales growth of at least 25% from e-commerce and new businesses this year, even though it missed that rate in the first quarter. Online sales rose 20% while revenue from new businesses gained 15%.
H&M might have e-commerce in place in all its markets by 2020. This month, the retailer began online sales in India and launched H&M on Alibaba’s Tmall service in China.