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H&M has offered an optimistic outlook on the year ahead, with CEO Karl-Johan Persson confident the fast fashion retailer is on the “right track” despite a fall in profit for both the fourth quarter and full year. 

In a results update today (31 January), the Swedish apparel retailer said profit after tax amounted to SEK3.54bn (US$392.2m) in the fourth quarter, a drop of 11.3% on SEK3.99bn in the year-ago period.

H&M said the results for from 1 September to 30 November were impacted by costs of around SEK560m, including the replacement of logistics systems. 

The group’s net sales, meanwhile, rose 12% to SEK56.41bn during the quarter, compared to SEK50.4bn last year. In local currencies, net sales increased by 6% driven by increased full-price sales and lower markdowns. Online sales jumped 24% in SEK and 20% in local currencies.

Gross margin narrowed to 54.2% from 55.4% in the year-ago period.

For the full year, H&M said profit after tax tumbled 21.8% to SEK12.65bn, compared with SEK16.18bn in the previous financial year. Group net sales were up 5% to SEK210.4bn, rising by 3% in local currencies. Online sales rose 22% to about SEK30bn, accounting for 14.5% of the group’s total sales. Gross margin for the year narrowed to 52.7% from 54% last year. 

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By GlobalData

Looking ahead, H&M said stronger collections and increased full-price sales mean that for the first quarter of 2019 the company expects markdowns to be around 1 percentage point lower, with a continued improvement in its inventory situation.

“While this performance is still some way off the targets that we set at the beginning of 2018, these positive signals confirm we’re making progress across all our strategic focus areas: to create the best customer offering; a fast, efficient and flexible product flow; a stable, scalable tech foundation; and adding new growth though store and online expansion,” the retailer says.

The group operates over 4,900 stores in 71 markets under brands including H&M, COS, Monki, Weekday, & Other Stories and Arket. In 2019 it plans to add 175 new stores, of which almost half will consist of newer brands.

“It has been a challenging year for H&M group and the industry but after a difficult first half, there are signs the company’s transformation efforts are beginning to take effect,” says Persson. “Improved collections generated better full-price sales and lower markdowns towards the end of the year. This gave us confidence to accelerate our transformation plans in the fourth quarter with a particular focus on the upgrade of our logistics systems. Inevitably resulting in increased costs but will lead to a range of improvements for customers.”

H&M still playing catch up online

Maureen Hinton, group retail research director at GlobalData, notes that while H&M is investing in new brands, product ranges, and improving its fashion offer, it still lags behind its peers in click and collect, online return to stores, and next day delivery.

These services “are in less than 11 of its 47 markets to date and are still behind competitors who have been offering these services for several years, and have moved on to much faster and more innovative options,” she says. “While its online penetration has reached 14.5%, the UK, which is a benchmark for online, has an average for clothing and footwear online of 27%, demonstrating how far H&M still has to go.”