H&M Hennes & Mauritz AB added to the growing drumbeat of negative news from fashion retailers by saying the weak start to the autumn season raises the risk of increased discounting in the fourth quarter.
Revenue growth slowed to 1 percent last month excluding currency shifts, the slowest pace in more than a year, the Stockholm-based company said in a statement yesterday, missing analysts’ estimates.
The retailer, which also operates the COS and Monki chains, also said it plans to introduce as many as two brands next year, seeking more diversification from its eponymous label.
Europe’s fashion retailers have been suffering lately from adverse weather and a lack of compelling fashion trends.
Next PLC CEO Simon Wolfson earlier this month likened business conditions as close to a recession.
H&M’s prospects for higher autumn markdowns comes after a drop in second-quarter profit and a 24 percent surge in inventory. The company has had to increase discounting during the summer to clear unsold spring garments, reducing third-quarter margin by 1.1 percentage points.
Pretax profit fell to 6.3 billion kronor (US$733 million) in the three months through August from 6.94 billion kronor a year earlier, H&M said.
That compared with an average 6.37 billion krona estimate of 14 analysts surveyed by Bloomberg. Gross margin narrowed to 54 percent, compared with the average analyst estimate of 54.3 percent.
H&M also said the strong US dollar will “somewhat” raise purchasing costs in the fourth quarter.
Earlier this month, H&M said its sales in local currency and including value-added tax increased 7 percent in August, missing the average analyst estimate of 12 percent.
The company then also reported third-quarter sales excluding value-added tax of 49 billion kronor, missing the average 49.6 billion krona estimate.
H&M has a “positive view of our opportunities for 2017 and going forward, both in terms of sales and profitability,” because the pace of investment made in recent years will gradually subside, CEO Karl-Johann Persson said in the statement.
The company plans to add e-commerce in 11 markets and open 425 new stores this fiscal year. Next year, H&M intends to open stores in four to five new markets, including Colombia, Iceland and Kazakhstan.
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