Swedish fashion retailer H&M has reported better than expected first quarter profits as it pushes ahead with rapid international expansion.
But as recent sales growth disappointed the world’s second-largest clothing group, behind Spain’s Inditex, the owner of Zara, admitted that “spring hasn’t really kicked in”.
H&M plans to open 400 new stores this year, mostly in China and the US. Last year it opened 379 outlets and this year’s expansion plans would push the number of stores worldwide to around 3,950. The retailer is pushing into new markets including Peru, Macau, South Africa and India. In February it opened its first store in Taipei, Taiwan.
The company intends to unveil a new flagship store on Herald Square in New York next year, which will be one of its largest shops at 5,700 sq m. It opened one on Fifth Avenue last year, with the store front (and H&M handbags) decked out in images of Jeff Koons’ yellow Balloon Dog sculpture.
Profits after tax were SKr3.6bn (£284m) in the quarter to 28 February, up 36% on last year and better than expected.
However, H&M warned that the strong dollar would drive up its sourcing costs this year. The retailer makes most purchases in dollars but a large chunk of its sales are in euros, and it reports its results in Swedish krone. Analysts fear this will hurt profit margins.
Sales in local currencies were up 9% in the first three weeks of March, which analysts described as disappointing, after climbing 15% in the first quarter.
H&M chief executive Karl-Johan Persson said: “It’s been a tough market. Spring hasn’t really kicked in.”
Battling competition from Inditex and discount chains such as Primark, H&M is investing heavily in online sales, new ranges, designer collections and higher-end brands such as COS.
The retailer will start selling its clothes online in Portugal, Belgium, Switzerland and most of eastern Europe this year. It plans to open 100 new home departments offering furnishings and home accessories. The company has branched out into sportswear and extended its shoe range, while a new beauty collection is slated for this autumn.
There was the usual scrum when a clothes range designed by Alexander Wang for H&M went on sale in November, marking 10 years of designer/high street collaborations. In November 2004, H&M signed up Karl Lagerfeld to design cut-price versions of his clothes.
