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H&M Bemoans Freezing January After Extending Losing Streak

People walk near the entrance of a Hennes & Mauritz AB store in Tokyo, Japan. Photographer: Kiyoshi Ota/Bloomberg
People walk near the entrance of a Hennes & Mauritz AB store in Tokyo, Japan. Photographer: Kiyoshi Ota/Bloomberg

Jan. 30 (Bloomberg) -- Hennes & Mauritz AB, Europe’s second-largest clothing retailer, reported a third straight drop in fourth-quarter profit and said freezing weather hurt sales this month, sending the shares down the most since September.

Net income slid 1.3 percent to 5.29 billion kronor ($83 million) in the three months ended Nov. 30, Stockholm-based H&M said in a statement today. Profit was hurt by investment in new brands and stores and adverse currency movements, which reduced earnings on translation by about 240 million kronor, it said.

The profit drop halts a revival at the fashion retailer, which had reported earnings growth in each of the last three quarters after five consecutive declines. H&M makes most of its revenue from the euro-area, where governments are cutting spending and the jobless rate is at a record 11.8 percent as the economy continues to suffer from the sovereign-debt crisis.

“Costs weren’t quite as tightly controlled in the fourth quarter as they were for the rest of the year,” Anne Critchlow, an analyst at Societe Generale SA in London, said by phone. January sales are “the most disappointing element,” she said.

H&M said it expects revenue this month to gain 5 percent in local currency terms, which Critchlow said equates to a decline of 4 percent to 5 percent at stores open at least a year. Sales were affected by extreme cold January weather in many European countries, the company said.

H&M fell as much as 4.2 percent to 225 kronor in Stockholm trading, the steepest intraday drop since Sept. 27. The stock traded down 2.6 percent at 10:04 a.m., the biggest decline in Sweden’s benchmark OMX Stockholm 30 Index.

Gross Margin

The gross margin narrowed to 61.6 percent of sales in the fourth quarter from 61.9 percent a year earlier as the retailer increased investment in new brands and its stores.

H&M, which sold a collection by fashion house Maison Martin Margiela in November, said same-store sales were unchanged, while total revenue gained 9 percent at local currency rates.

“These are disappointing results, as management continues to step up investment in both the product and longer term initiatives, yet sales performance has not rebounded,” Jamie Merriman, an analyst at Sanford C. Bernstein, said in a note.

Net income exceeded the 5.2 billion-kronor average estimate of 16 analysts compiled by Bloomberg, though was “saved” by a lower tax rate, according to Critchlow.

H&M held the dividend for the year at 9.50 kronor a share and said it plans to open about 325 stores this year.

Sixth Brand

The company confirmed that it will introduce its new “& Other Stories” brand in the spring. H&M said at the beginning of this month that it would start selling the brand, which will focus on women’s shoes, bags and accessories, in stores and online in 10 European countries.

“H&M continues to stand strong in a challenging clothing market which in many countries has been even more challenging in 2012 compared to 2011,” Chief Executive Officer Karl-Johan Persson said in the statement.

The Swedish retailer is diversifying with a sixth brand after falling behind larger competitor Inditex SA in the race for the price-sensitive fashionista’s euro. Inditex, the world’s largest clothing retailer, has been pushing online business for brands including Zara. Last year, Inditex shares gained 67 percent, while H&M rose 1.5 percent.

Inditex said this week that it stopped doing business with two subcontractors after garments with the company’s labels were found at the site of a fatal factory fire in Bangladesh.

To contact the reporter on this story: Julie Cruz in Frankfurt at jcruz6@bloomberg.net

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net

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