PARIS – Ongoing investment in improving its product offering and shopping experience, as well as higher costs, weighed on H&M Group through the first half.
The Swedish fashion retailer’s operating profit for the three-months to May 31 was down 16 percent to 5.91 billion Swedish kronor, or $621.1 million at constant currency, a decline it attributed to lower gross margin and currency translation effects. This represented an operating margin of 10.4 percent, versus 11.9 percent a year ago.
H&M said margins were negatively impacted by external factors like the more expensive U.S. dollar and high freight costs, with higher purchasing costs for the second quarter, as well as ongoing investments in improving its offering for consumers.
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The retailer anticipates that the external factors that negatively impacted its purchasing through the first half are turning positive for the latter part of the year.
The group saw sales up 1 percent in local currencies in the three months to May 31. On a like-for-like basis – the retailer has reduced its store count by 4 percent since the end of May last year – sales were up 3 percent.
On a reported basis, the company registered second-quarter net sales of 56.71 billion Swedish kronor, or $5.96 billion at current exchange, down 4.9 percent year-on-year, largely due to a stronger Swedish kronor.
Despite the numbers, with its smaller store footprint and turnaround plan in progress to improve its product offering and shopping experience, H&M said it is beginning to see signs of progress.
“Some measures have a faster impact than others, but the direction is clear and during the year we continue to implement improvements in other parts of the business,” said H&M chief executive officer Daniel Ervér. “The positive development in important areas such as online, H&M womenswear and H&M Move, as well as continued focus on good cost control, will contribute to a profitable sales development.”
For the first half, sales in local currencies were up 1 percent. In reported terms for the six-month period, net revenues dipped 1 percent, to 112 billion Swedish kronor, or $11.77 billion. Operating profit dropped a massive 22 percent, to 7.12 billion Swedish kronor or $748.3 million, representing an operating margin of 6.4 percent.
For the current quarter so far, the company said it has seen gains, with sales in local currencies expected to be up 3 percent in June despite a negative calendar effect.
“Our plan, with its focus on the product offering, the shopping experience and brand, is again confirmed by the progress we see,” said Ervér.
