H&M saw its gross margin fall in Q4

H&M saw its gross margin fall in Q4

Swedish fashion retailer Hennes & Mauritz (H&M) has booked fourth-quarter profit that missed analyst expectations and "disappointing" margins but said it remains optimistic for 2014.

The budget retailer posted a pre-tax profit of SEK7.34bn (US$1.13bn) in the three month period, an increase of 11% on last years SEK6.64bn. The figure, however, missed Reuters analyst forecasts for SEK7.6bn.

Gross margin fell to 60.8% from 61.6% in the corresponding period last year, primarily due to currency exchange rate effects.

"These disappointing margin performances support our thesis that H&M will need to continue to lower prices in order to compete with lower priced rivals and suggest that the company has increased investment, notably in online shopping, IT, and the new brand '& Other Stories', leading to lower gross margins," said Bernstein analysts.

Sales, however, climbed 6.5% to SEK150.1bn from SEK140.95bn in the prior year period. The retailer said it expects sales to increase 15% in January after a 10% increase in December, the first month of its fiscal first quarter.

CEO Karl-Johan Persson said he was optimistic for 2014.

"The financial year 2014 has got off to a good start, with strong sales development in December and January. Although there are still macro-economic challenges in several of our markets, we are optimistic about 2014 which will be an exciting year with new countries and new opportunities. We have a strong belief in our offering and are convinced that we will strengthen our market position even further during the year."

H&M said it plans to open around 375 stores in its new financial year and that Australia and the Philippines will become new countries for the group this year. A couple of other new markets are also planned at the end of the year.

"France will open in spring/summer 2014. An additional three large online markets are planned to open later in the year," it said.

H&M's share price was down 3.24% to SEK277.90 at 08:50 GMT.