H&M's profits plummet by 44% in the first quarter of 2018

Swedish clothing retailer Hennes & Mauritz has reported 2018 has started just as badly as it 2017 ended.

Even though the group had a one-off positive tax income of SEK 399m as a result of the US tax reform, net profit fell 44% in the first quarter from 1 December to 28 February down to 1,372m krona.

The stocks fell by 7% in the Swedish stock exchange at midday after the results were published.

Sales excluding VAT fell 1.7% from SEK 46.985bn to SEK 46.181bn. The company’s CEO said these negative results and weak sales were caused by a cold winter that has affected the success of their spring collection. This, combined with substantial markdowns have had a negative impact on the company.

The company decided to continue with the January and February sales to try and get rid of unsold garments. The company found itself in a similar situation last autumn when the warm weather delayed the consumer purchase of winter clothing. The operative margin dropped from 6.7% to 2.6%.

H&M also announced that the launch of its online store in India is going very well and they expect the opening of H&M and H&M Home on Tmall in China in late March will exceed expectations.

Karl-Johan Persson, CEO of H&M said: “The rapid transformation of the fashion retail sector continues. As communicated previously, 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 digitalisation.

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 company’s assessment for the future remains that sales for online and New Business will grow by more than 25% during 2018 and it will improve its annual results compared to last year.