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H&M Profits Plummet 44% as Its Inventory Piles Up

It wasn’t a first quarter to remember for H&M Group, which saw weak sales and a steep profit decline as it struggles to develop an omnichannel strategy.

H&M Group

In a Nutshell: H&M said weak sales in the fourth quarter, partly caused by imbalances in the assortment for the H&M brand, resulted in the need for substantial clearance sales in the first quarter. In addition, unusually cold winter weather had a negative impact on spring garment sales, leading to a drop in sales compared to a year earlier.

The fast-fashion retailer said it was working to improve assortments and develop new concepts and formats while optimizing its existing stores. Continued integration of physical and digital stores to allow customers to move easily between channels, was also part of the company’s efforts. H&M said its online store in India, launched in mid-March, has gotten off to a good start and that the rollout of H&M and H&M Home on Tmall in China has exceeded expectations.

The retailer, as many are, is working to ensure a faster, more flexible and more efficient supply chain, while improving efficiencies through several initiatives in its buying and production departments.

In addition, H&M said it will introduce Afound as a new brand this year. Afound will be positioned as an off-price marketplace offering products from lifestyle brands inside and outside of the company. Its first stores and a digital marketplace are slated to open in Sweden.

Sales: H&M Group’s sales for the first quarter ended Feb. 28 fell 1.7% to 46.18 billion Swedish kronor ($5.62 billion) from 46.97 billion Swedish kronor ($5.72 billion) a year earlier.

Earnings: Profits after taxes dropped 44 percent to 1.37 billion Swedish kronor ($170 million) from 2.46 billion Swedish kronor ($300 million) in the year-ago period.

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The company said it had a one-time positive tax income of 399 million Swedish kronor ($48.57 million) as a result of the U.S. Tax Act.

CEO’s Take: Karl-Johan Persson, CEO, said: “The rapid transformation of the fashion retail sector continues. The start of the year has been tough–2018 is a transitional year for the H&M group, as we accelerate our transformation so that we can take advantage of the opportunities generated by rapid digitalization.”

“Many of our ongoing initiatives are giving good indications and results, even though they have not yet been implemented at a large enough scale to have a decisive effect on the overall results. The weak sales development combined with substantial markdowns had a significant negative impact on results in the first quarter.”