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FY 16 margins under pressure

  • 30 Sep 16

In the first nine months, sales growth was decent but margins were under external and internal pressures. Sales were up 5.6% to reach SEK139,547m, boosted by a rise of 6.4% in Q3 (SEK48.982m) compared to 5.1% in H1 16. Excluding Germany and Switzerland, which posted respective sales decreases of 1% and 9%, all regions experienced favourable momentum at local currencies led by the USA and Sweden (+7%). Following the weakening of the British pound, the performance in the UK turned negative (-5%) while, at local currency, revenue grew by 2%. Profitability was hit by the surging purchasing costs following the appreciation of the US$ as well as the heavy mark-downs applied in the current unusually warm weather. Moreover, operating investments incurred in the expansion plan are pulling margins down. The operating margin slipped to 11.8% (-3.2pc), dwindling the operating profit by 17% to SEK16,469m. Q3 operating profit was down 9% to SEK6,247m, i.e. an operating margin of 12.8%. Net profit amounted to SEK12,722m (-17.2%) since the beginning of the year. The slowdown is likely to continue in Q4 due to the warm September in which sales are expected to increase by 1% in local currencies. Capex surged by 75.7% to SEK9,378m. The operating cash flow remained almost flat at SEK17,549m. Stock in trade ballooned by 25.7% compared to year-end 2015 to reach SEK31,231m, i.e. 22.4% of sales. The financial position remains strong even with slipping cash to SEK8,68m. The group is currently operating through 4,135 stores and 35 on-line markets.

The warm weather caught the Q1 performance in a whirlwind

  • 06 Apr 16

The warm weather has put the Q1 performance under pressure. Sales growth slowed to 9% (in local currencies) yoy compared to 15% in Q1 15 and 11% in FY15 due to the markdowns on large stocks of winter garments. Sales amounted to SEK43.7bn vs. SEK40.3bn a year earlier. Aside from the price deflation, the mild weather caused a slump in demand for winter collections and pulled down sales. The heavy discounts coupled with the higher purchasing costs crumbled margins and deteriorated the operational performance. The gross margin lost 320bp to 52% dropping the operating profit by 29.5% to SEK3.3bn. Net profit decreased from SEK3.6bn to SEK2.6bn. The geographical breakdown reported an outperformance in the American and Italian markets which increased by 11% in local currencies. The main market (Germany), contributing 17% to revenues, disappointed with almost flat sales (+1%). The stock in trade jumped by 25% yoy to SEK25.2bn, amounting to 13.6% of sales on a rolling twelve months. The expansion plan is maintained both through stores and online and the full-year 2016 is expected to add 425 new stores to the current 3,970. Only 46 net additions were reported in Q1. Capex amounted to SEK2.5bn vs. SEK2.2bn in Q1 15. H&M is currently present in 61 markets and the expansion would consolidate these current markets with a focus on China and the USA. The online services are provided in 23 markets and are expected to be extended to 34 by the end of the year.