Swedish fashion chain H&M has said profits in the third quarter were hit by a combination of hot weather, increased markdowns and a stronger dollar.
The retailer said the autumn trading season got off to a tough start because exceptionally hot September weather in the UK and other European countries put people off buying warmer clothing and led to increased discounting.
A stronger dollar also pushed costs up over the quarter. Pre-tax profit fell 9.2% to 6.3bn kronor (£567m) between 1 June and 31 August, falling short of analysts’ expectations. Sales including VAT rose 6% to 56.8bn kronor.
Karl-Johan Persson, H&M’s chief executive, said: “Sales were good in most of the markets up until mid-August. Thereafter sales were negatively affected by unseasonably hot weather which continued into September, resulting in a challenging start to the autumn season.
“The sales performance in the third quarter and increased markdowns due to a higher opening stock than planned had a negative impact on profit development. In addition, profits continued to be negatively affected by the strong US dollar effect on purchasing costs.”
Sales including VAT in the first nine months of H&M’s financial year increased by 5% to 161.8bn kronor. Pre-tax profit fell 17% to 16.6bn kronor.
H&M has a total of 4,135 stores, with 271 in the UK. The UK was the retailer’s third largest market in terms of sales in the first nine months of the year, behind Germany and the US. UK sales including VAT slipped to 11.05bn kronor from 11.6bn kronor a year earlier.
Persson said big investment in IT and new brands had “burdened” profits for a long time but was necessary to create the basis for sustainable and profitable growth. H&M – whose other brands include Cos and & Other Stories – is planning to introduce one or two new brands in 2017.
“Building on this base, we can now continue to develop and strengthen the shopping experience within a number of different areas such as continued integration of stores and online, expanded and faster delivery options and mobile payment solutions,” Persson said.
“All of this – combined with the fact that the fast pace of investment is to some extent gradually starting to subside – gives us a positive view of our opportunities for 2017 and going forward, both in terms of sales and profitability.”
The company declined to give any details on the new brand launches planned for next year.
Nils Vinge, head of investor relations at H&M, suggested price competition was mounting among retailers: “We’ve already seen in the past couple of weeks competitors and peers getting panicked and starting their mid-season sale before the season even started.”
The retailer is planning to launch an online shop in Canada and South Korea during autumn 2016. By the end of the year, H&M will have online shops in 35 markets and stores in 64 markets.
It will have opened about 425 new stores by the end of the current financial year, and entered three new markets – Puerto Rico, Cyprus and New Zealand. In 2017 the fashion brand plans to open stores in four to five new markets, including Colombia, Iceland and Kazakhstan.
Analysts at RBC Capital Markets said they were concerned about the longer-term outlook for H&M’s like-for-like sales, “due to more challenging markets, increased price competition and a lower structural boost now from the rollout of online sales”.
