H & M Hennes & Mauritz AB Three-month report

First quarter (1 December 2018 – 28 February 2019)

• The H&M group’s net sales increased by 10 percent to SEK 51,015 m (46,181) in the first quarter. In local currencies, net sales increased by 4 percent. The ongoing transformation work has contributed to continued positive sales development with more full-price sales, lower markdowns and increased market share in many markets.
• The online platform in Germany was successfully replaced during the quarter. To secure a smooth and well-executed transition, local sales activities were restrained – which had a dampening effect on sales. Adjusted for Germany’s online sales in the quarter, the group’s total net sales increase was 6 percent in local currencies.
• Gross profit increased by 11 percent to SEK 25,526 m (23,040), corresponding to a gross margin of 50.0 percent (49.9).
• As a result of a stronger customer offering combined with ongoing improvements in buying and logistics, markdowns in relation to sales decreased by around 1.5 percentage points compared to the corresponding quarter the previous year.
• Profit after financial items amounted to SEK 1,043 m (1,263).
• The group’s profit after tax amounted to SEK 803 m (1,372), corresponding to SEK 0.49 (0.83) per share. Profit after tax in the previous year was positively affected by one-off tax income of SEK 399 m as a result of the US tax reform (Tax Cuts & Jobs Act)
• Net sales in the period 1 March 2019 to 27 March 2019 increased by 7 percent in local currencies compared to the corresponding period the previous year.
• H&M’s loyalty programme now has 35 million members and an upgraded version will be launched shortly.
• H&M will be launched on Myntra and Jabong, India’s largest e-commerce marketplaces, later this year.
• Online and physical stores are being increasingly integrated, while in parallel the global roll-out of online stores continues. Today H&M online is available in 47 markets and during 2019 Mexico will be added as well as Egypt that will open via franchise.
• Continued optimisation of the store portfolio. In 2019 the H&M group plans a net addition of 175 new stores. Most of the new H&M stores will open in growth markets, while the number of H&M stores in Europe is expected to reduce by 50.

Comments by Karl-Johan Persson, CEO

“Our ongoing transformation work has contributed to stronger collections with increased full-price sales, lower markdowns and increased market shares. Sales developed well both in stores and online in many markets, including Sweden which grew by 11 percent, the UK by 8 percent, Poland by 15 percent, China by 16 percent and India by 42 percent in local currencies.

In the first quarter the group’s sales increased by 10 percent, which in local currencies represents a sales increase of 4 percent.

During the quarter the company successfully transitioned the online platform in Germany. One of the measures to ensure a smooth, well-executed transition was to deliberately hold back on sales activities in Germany, which had a dampening effect on online sales. Adjusted for Germany’s online sales, the group’s total net sales increase was 6 percent in local currencies.

All markets are now on the new online platform. For our customers in the German market this means improvements such as faster and more flexible deliveries, and better integration between our physical stores and the online store.  

The quarter’s pre-tax profit of SEK 1,043 m was negatively affected by the drop in sales in Germany, but also by costs of around SEK 250 m associated mainly with the replacement of the online platform in Germany as well as continued costs relating to implemented and upcoming transitions to new logistics systems. This is having a negative effect on our margin in the short term but will have a positive effect in the longer term as it will result in a faster, more flexible and more efficient product flow.

We can see that our transformation work is having an effect and we will continue this work at full speed within our strategic focus areas:

Create the best customer offering

• Product assortment – secure the best combination of fashion, quality, price and sustainability for all the brands.

• Physical stores – continued development of new concepts and optimisation of the store portfolio.

• Online stores – improvements such as faster and more flexible delivery options and payments.

• Continued integration of our physical stores and online stores to enhance the customer experience.

Fast, efficient and flexible product flo

• The supply chain will be even faster, more flexible and more efficient.

• Initiatives within advanced data analytics and AI.

Investments in infrastructure – our tech foundation

• Continued investments in our tech foundation including robust scalable platforms that enable faster development of various customer apps and new technologies.

Adding growth

• Digital expansion into new markets. This year the H&M brand is launching online in Mexico and Egypt as well as on Myntra and Jabong, the largest e-commerce marketplaces in India.

• Physical stores – a net addition of around 175 for the year. Focus on growth markets for the H&M brand.

• Develop new concepts and business models.

The rapid transformation of fashion retail continues and we can see that our own transformation work is taking us in the right direction, even if many challenges remain and there is still hard work to do. The progress we have made in our strategic focus areas confirms that we are on the right track. Therefore we continue moving forward at full speed and we are optimistic about the future for the H&M group.”