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H&M profits shrink in first six months of FY

Due to rapid transformation of the fashion retail sector profits at fast-fashion chain H&M down by a third in the first six months of the financial year. The Swedish retailer Hennes & Mauritz (H&M) said it in a press release on 28 June.

H&M profits shrink
Figure: H&M is suffering intensifying inventory problems. Photo: Reuters

According to the H&M, profits “after financial items” were SEK 7.3 million (€702,000) over the period to May 31st, and SEK 6 million in the quarter between March and the end of May, while the group’s profit after tax for the half-year fell by nearly a third, to SEK 6 million from SEK 8.4 million last year.

Sales at the world’s second-largest fashion retailer remained broadly flat over the period, though poor trading at the start of the year was helped by a 2 percent rise in the second quarter. Pretax profit for the quarter was also in line with last year’s figure.

Chief Executive of H&M, Karl-Johan Persson said, “As we signaled previously, it was going to be a tough first half-year. We went into the second quarter carrying too much stock and we still had some imbalances in the H&M assortment – something that we are gradually correcting.”

The company strikingly refused to confirm its full-year guidance of a “somewhat better result” this year compared with 2017, leading some to wonder if it had issued an implicit profit warning.

Persson further added, “It has become tougher to reach the full-year guidance, but there is still half a year to go.”

Investments of H&M in online platforms were “starting to have results”, H&M said, total sales for the quarter “were not satisfactory, which meant that inventory levels were still too high at the end of the period”. Overall, the first half of the year was somewhat more challenging than we initially thought.

Nils Vinge, Head of investor relations, said, “The high level of stock compared with revenues was in large part due to a stagnant top line. It had been a long time since the growth has been so slow in the business. Of course, it’s a concern. We work hard to get back to a leaner level.”

According to the press release, H&M has been particularly vulnerable to changes in customer habits and the boom in online shopping, given its reliance on opening large numbers of stores.

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