H&M profits lifted by new stores, cost control

STOCKHOLM (AFP) - Swedish clothing giant Hennes and Mauritz (H&M) on Thursday announced a stronger than expected profit in the second quarter thanks to the opening of new stores and better cost control.

Net profit for the period between March and May stood at 5.9 billion kronor (S$956.77 million), up by 10 per cent, while turnover also rose 10 per cent (five percent in local currencies), to 59.5 billion.

Operating profit was 7.6 billion, significantly higher than market expectations averaging 7.0 billion, according to the financial agency SME Direkt.

"The profit increase in the second quarter is mostly explained by continued expansion and tight cost control," the Swedish group said in a statement.

H&M continues to open physical stores around the world to compensate for the downturn, and even decline, in its profitability, amid fierce competition from online sales platforms.

"Customer behaviour and expectations are changing at an ever-increasing pace, with a greater and greater share of sales taking place online," chief executive Karl-Johan Persson said in a statement, adding this "brings great opportunities for the H&M group".

"I'm hearing that we are lagging behind in e-commerce, but we are convinced that our strategy ensures the conditions for our long-term growth," told a news conference.

H&M expects to increase its annual online sales by 25 per cent in the coming years, while total sales are expected to grow by only seven percent in June (down from the eight percent increase in June 2016), a crucial month for summer sales.

In the second quarter, the Swedish company further expanded its online offer, which is now available in 41 markets.

It plans to embark on the immense Indian market in 2018.

The growing online shopping trend is weighing heavily on H&M's share price on the Stockholm stock exchange, where it has lost nearly 40 per cent of its value since November 2015.

In recent weeks, analysts have speculated about H&M's potential withdrawal from the stock market via a share buyback by the Persson family.

After a strong opening on Thursday, shares fell and then recovered, trading up 1.9 per cent at 208.6 kronor on the Stockholm stock exchange at 0942 GMT (5.42 p.m Singapore time).

As of May 31, H&M had 4,498 physical stores with a net opening of 147 points of sale since the beginning of the year.

In Germany, its biggest market, H&M posted an eight percent sales increase in the quarter, compared to one percent in the United Kingdom, four percent in France, six percent in China and nine percent in the United States.

However, these figures are much less flattering in local currencies.