• Q1 earnings drop to SEK2.54bn (US$306.6m)
  • Gross margin narrows to 52%
  • Sales climb 8% to SEK50.62bn
H&M has been hit by the negative US dollar effect

H&M has been hit by the negative US dollar effect

Swedish fashion group Hennes & Mauritz (H&M) saw profits slide in its first-quarter, albeit less than expected, as the negative US dollar effect made purchasing more expensive.

Earnings amounted to SEK2.54bn (US$306.6m) from SEK3.61bn in the corresponding period of last year. As well as the US dollar impact, profits were also hit by increased markdowns due to larger volumes of winter garments remaining after the warm autumn.

Gross margin also narrowed slightly, to 52% from 55.2% last year. Group sales, however, climbed 8% to SEK50.62bn from SEK46.79bn.

H&M said it recorded "very satisfactory" sales and profit development for its e-commerce division. A total of 11 new online markets will be added in 2016, bringing the total to 34 markets, including Japan, Greece, Canada and South Korea. 

The group also plans to add around 425 stores in the new fiscal year, primarily in existing markets, but also in new markets including New Zealand, Cyprus and Puerto Rico.

CEO Karl-Johan Persson, said: "An important part of our long-term work on further strengthening the group's future market position is our ability to offer customers a wider selection of brands with different identities. Our new brands - Cos, & Other Stories, Monki, Weekday and Cheap Monday - represent an increasingly important part of the group and we are looking forward to launching more new brands further ahead."

Bernstein analyst Jamie Merriman noted that while the results were ahead of consensus and expectations, there continues to be structural pressure on the business.  

"In the next 12 months, US dollar pressure will ease; however, we still see potential for long-term margin compression given the competitive environment. Consensus expects gross margin for the full year to be down 110bps, which seems low given ongoing US dollar pressure in Q2 and Q3, and the weak sales growth delivered year-to-date."