• Q1 profit at SEK2.6m
  • Gross margin narrows to 54.9%
  • Sales up 13% to SEK32.14bn
H&M revealed expansion plans for 2014 and 2015

H&M revealed expansion plans for 2014 and 2015

H&M Hennes & Mauritz saw its shares slide this morning (27 March) after the Swedish fashion retailer revealed "disappointing" first-quarter results that "significantly" missed analyst consensus.

Shares dropped 4.45% to SEK277 at 09:25 GMT after the group revealed a narrowing gross margin of 54.9% from 55.2% a year earlier, driven by marginally higher markdowns year-on-year. This was against consensus expectations for gross margin to expand around 10bps.

The group's profit after tax increased to SEK2.6m (US$401.4m) from SEK2.4m in the comparable 2012 period. Sales, excluding VAT, amounted to SEK32.14bn, an increase of 13% on the year ago period.

Operating profit of SEK3.4m was up 8.7%, but 6.9% below consensus expectations of SEK3.6m.

Bernstein analyst Jamie Merriman described the figures as "a disappointing set of results", with H&M "significantly missing consensus".

"While part of this miss can be attributed to long-term investments, we believe it is also indicative of weak LFL sales performance and price investment, as the company tries to compete in the fast-growing and increasingly populous value apparel world.

"Sales performance does not seem to have improved in March, and the comps only get more difficult in April and May. Furthermore, the high inventory levels suggest H&M may see further margin pressure from increased levels of markdown," he said.

H&M, however, says it has expansion plans for 2014 and 2015. This year it plans to open 375 new stores including global openings.

Australia, the Philippines and India will become new H&M countries in 2014, with Peru and South Africa to become new countries in 2015.

Spain and Italy will also become new H&M online markets in early autumn. In addition, preparations are under way for the opening of an online shop in China at the end of the year.

Cantor analyst Allegra Perry said she continues to question the brand's unique selling point, brand positioning and store merchandising, adding: "[We] believe the group will struggle to return to previous peak margins with its current business model."