STOCKHOLM – Fashion retailer Hennes & Mauritz AB (HM-B.SK) on Wednesday laid out plans to help it catch up with rivals after seeing net profit slump 32% in the fourth quarter following a bout of heavy price cutting and lower footfall to its stores.
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H&M has lagged behind competitors in the move to online sales and although its digitalization process is in full swing now, growing online sales aren't fully compensating for reduced footfall to its stores.
"The fashion industry is changing fast," said Chief Executive Karl-Johan Persson.
"At the heart of the transformation is digitalization and it is driving the need to transform and rethink faster and faster. This is presenting many challenges but we believe we are well placed to adjust to the new dynamics and take advantage of the opportunities in front of us."
As part of its turnaround plan, H&M said it would investigate the possibility of introducing a dividend reinvestmnet scheme where shareholders could reinvest the dividend received in newly-issued H&M shares, helping the company to fund the continued high investments needed in digitalization.
In a further change of tact for the Swedish retailer, it said it would be launching a new brand this year called Afound, which will offer discounted products both from external brands as well as the H&M group.
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Sales have got off to a sluggish start in the company's first quarter, with sales including VAT in the period from Dec. 1, 2017 to Jan. 31, 2018 expected to increase by 1% in local currencies on the year, it said. High levels of stock and weak sales mean markdowns in relation to sales will increase by around 1.5 to 2.0 percentage points in the first quarter compared with last year.
H&M targets increasing sales in local currencies by 10%-15% a year in the long-term, but in view of the transition work to face the major shift in the industry, the company does not expect the growth target to be reached in the current financial year.
The roll out of online markets will continue during 2018 and it plans to offer e-commerce in all markets that it has a physical presence, as well as in other markets. The online store is currently available in 44 markets and will soon be available in India and via franchise partners to Saudi Arabia and the United Arab Emirates.
H&M plans to open around 390 new physical stores this year but will close 170 as it continues to shuffle its portfolio to optimize its number of stores, store space, rebuilds and relocations.
H&M's net profit in the fourth quarter, which runs from Sep. 1, 2017 to Nov. 30, 2017, was 3.99 billion Swedish kronor ($506 million), compared with SEK5.91 billion a year earlier, in line with expectations of SEK3.94 billion according to a FactSet poll. Gross margin fell to 55.4% from 57%. Sales excluding value added tax slipped by 4.4% on the quarter to SEK50.41 billion.
The company maintained its SEK9.75 dividend.
Write to Dominic Chopping at email@example.com; Twitter: @domchopping @WSJNordics
(END) Dow Jones Newswires
January 31, 2018 03:12 ET (08:12 GMT)