Swedish fashion retailer Hennes & Mauritz AB (H&M) said it is increasing markdowns this quarter after accumulating a record pile of unsold garments worth more than US$4 billion.
Operating profit fell 62 percent to the lowest level in 16 years as inventory rose to 17.6 percent of sales in the first quarter. The stock slumped to the lowest in almost a decade.
“The worrying sign again comes from unabated piling-up of inventory,” Bloomberg Intelligence analyst Chris Chaviaras said.
H&M’s already downbeat forecast for the start of this year was exacerbated by unseasonably warm European weather in January followed by last month’s cold snap, whipsawing the clothing retail industry.
That forced the company to slash prices even more to try to clear inventory.
Chief executive officer Karl-Johan Persson yesterday said the company made mistakes by narrowing its assortment last year, although he expects sales to improve in the second half of this year.
The shares traded 4.1 percent lower at 122.1 kronor as of 9:33am in Stockholm.
H&M plans to reduce markdowns in the second half, when sales should improve, Persson said.
He forecast that the retailer will reduce inventory to 12 to 14 percent of sales next year.
“We haven’t improved fast enough,” said the billionaire chief executive officer, 43. “We’re working hard to fix that.”
The retailer is adding a new brand called Afound to sell clothes from various brands, including H&M at a discount, and it is adding three automated logistics centers this year to speed up deliveries.
H&M last month forecast sales in comparable stores to drop this year before returning to growth in fiscal 2019.
“The next 12 to 18 months will be challenging,” Barclays PLC analyst Alvira Rao wrote, adding that the initiatives might not be enough to keep up with increasing competition.
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