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H&M Profit Hurt by Hot Weather and Markdowns

A hot start to September wilted sales at Swedish fast-fashion chain H&M and profit suffered as a result.

The retailer revealed Friday that unseasonably hot weather, increased markdowns and a strong U.S. dollar that put pressure on purchasing costs combined to cut its third-quarter profit by 9 percent to 4.82 billion Swedish kronor ($561 million), down from last year’s 5.3 billion Swedish kronor ($617 million).

The group’s sales including VAT increased by a less-than-expected 6 percent in the three months ended Aug. 31, reaching 56.8 billion Swedish kronor ($6.6 billion). In local currencies, that increase was 8 percent.

“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,” said Karl-Johan Persson, the company’s chief executive officer. “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 U.S. dollar effect on purchasing costs.”

Despite this, H&M Group—which also includes Cos and & Other Stories—plans to launch “one or two new brands” next year and will continue investing in strengthening the shopping experience, such as improving omnichannel capabilities, advanced data analytics and RFID.

“In parallel with this, we have also identified several things within our customer offering where there is potential for improvement,” Persson added. “All 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.”

Looking ahead, H&M’s e-commerce will launch in Canada and South Korea this fall, bringing the total to 35 online markets by the end of the year. In addition, the group will have opened 425 new stores and entered three new markets by the current fiscal year’s end. In 2017, H&M will further increase its retail footprint, with stores in four to five new markets, including Colombia, Iceland and Kazakhstan.