H&M turnaround gains traction
H&M on Friday reported that first quarter net sales rose 10% to SEK 51 Billion ($46.2 billion), or 4% in local currencies, thanks to "ongoing transformation work [that] has contributed to continued positive sales development with more full-price sales, lower markdowns and increased market share in many markets." Online sales rose 18% in SEK compared with the first quarter the previous year, according to the company.
Gross profit in the quarter rose 11% to SEK $25.5 billion, corresponding to a gross margin of 50%, according to the release. Also in the quarter, markdowns in relation to sales narrowed by around 1.5 percentage points year over year, the company said.
The improved results continued into the second quarter, at least so far, the company said. Net sales March 1-27 rose 7% in local currencies compared to the year-ago period, the company said.
After a bruising battle last year with an excess inventory pile that forced markdowns and threw its fast-fashion approach into question, H&M has managed to reverse course.
"Our ongoing transformation work has contributed to stronger collections with increased full-price sales, lower markdowns and increased market shares," CEO Karl-Johan Persson said in a statement. "Sales developed well both in stores and online in many markets, including Sweden which grew by 11 percent, the UK by 8 percent, Poland by 15 percent, China by 16 percent and India by 42 percent in local currencies."
Persson also said that the apparel company's most recent results serve as proof that its "transformation work is taking us in the right direction, even if many challenges remain and there is still hard work to do."
He's right to take such a sanguine tone, but also right that there's more to do, according to Kate Ormrod, lead retail analyst at GlobalData. "H&M ended its last financial year in a better place after a decent Q4 sales performance, and this trend has continued into Q1 FY2018/19 ... aided by improved full price trading and reduced markdowns owing to its trend coverage and affordability," she said in comments emailed to Retail Dive. "The value retailer's optimism about the future is justified ... However it will come up against tougher comparatives in H2, and its transformation plan must continue to deliver, with rebuilding profitability crucial."
The company has retained a focus on sustainability and growth, both on and offline. H&M said it has plans to open more e-commerce sites in new markets, including in Mexico and Egypt, as well as on Indian marketplaces Myntra and Jabong. Growth markets will also be in focus for a brick-and-mortar expansion of 175 net new stores for the year, the company also said. But that also involves a shift away from underperforming stores elsewhere, Ormrod noted.
"Its store count in Europe is expected to be reduced by 50 this year as it focuses on growth markets," she said. "While bricks-and-mortar sales growth is proving a challenge for many in the UK fashion sector, H&M continues to invest in new store concepts and premiumise its instore environment to boost footfall – though there remains a disparity between flagships and secondary locations."
And several initiatives, including those new websites and marketplace participation, demonstrate that H&M is finally serious about catching up in e-commerce, she also said. "Users in the US can now buy H&M products directly on Instagram without leaving the app. Being part of this trial signals H&M's intentions to become more innovative online, much needed to compete with online pureplays."
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