The Company Also Saw Its Gross Margin Drop, Despite Minor Sales Growth
Hennes & Mauritz AB reported a significant decrease in net profit for the first quarter as its financials were impacted by markdowns, ongoing investments, and a strong Swedish krona. The company’s net income for the three months ending February 28 was 579 million Swedish kronor (approximately $57.7 million), a decline of 53 percent from 1.23 billion kronor in the same period the previous year. This figure fell well below analysts’ expectations, which had predicted a net income of 1.28 billion kronor, according to a FactSet poll.
The company also saw its gross margin, a crucial profitability metric, narrow to 49.1 percent from 51.5 percent in the year-earlier period.
Despite these challenges, H&M recorded a 3 percent increase in sales, totaling 55.33 billion kronor (about $5.47 billion) from December 1 to February 28. Sales in local currency terms rose by 2 percent, even as the retailer operated around 3 percent fewer stores than in the previous year.
Looking ahead, H&M expects a 1 percent rise in sales in local currency terms for March.
“Although we have made important progress in our plan and have good cost control, our sales and earnings in the quarter were somewhat weaker than planned – but the first quarter is the smallest quarter of the year for us in terms of sales and margin, and we are confident going forward,” stated Daniel Ervér, CEO of H&M.
Ervér further explained the factors influencing the quarter’s profitability: “Profitability in the quarter was negatively impacted by a weaker gross margin, which in turn was affected by negative external factors, increased markdowns and investments in the customer offering.”
He added optimism for the near future, noting, “We estimate that the overall negative effect of these will already be significantly smaller in the second quarter than in the first quarter.”
The company saw positive sales trends across various regions in Europe, particularly in Germany and Poland. Additionally, online sales experienced growth as H&M expanded its upgraded e-commerce platform to more markets.
In an effort to optimize its store portfolio, H&M closed 40 underperforming locations during the quarter.
Ervér emphasized the company’s strategic focus: “Our main priorities are a strengthened product offering, a more inspiring shopping experience and a stronger brand. Through this we create the conditions for long-term, profitable and sustainable growth.”