H&M fourth-quarter earnings miss analysts’ estimates

Hennes and Mauritz reported fourth-quarter earnings that missed analysts’ estimates as a stronger dollar raised garment costs and the Swedish clothing retailer offered discounts in an unusually warm winter season.

Pretax profit fell 8.4 per cent to 7.15 billion kronor (€768 million) in the three months through November, the Stockholm- based company said in a statement Thursday. Analysts predicted 7.27 billion kronor.

The effect of the greenback’s strength will remain as strong in the first quarter, then progressively diminish, H&M said.

The stock fell as much as 3.4 per cent. "Guidance for the first quarter looks particularly weak," Jamie Merriman, an analyst at Sanford C. Bernstein, said in a note.

“It looks like there will be more currency compression and markdowns and this will make the total margin pressure greater.”

The retailer gets about 80 per cent of its products from Asia, where clothing prices are often linked to the dollar, which contributed to gross margin narrowing to 57.5 per cent from 60.4 per cent.

Unseasonably mild weather in countries including Germany, where H&M gets about a fifth of sales, also contributed to the weaker profit performance, especially in November.

The stock fell 3 per cent to 287.10 kronor as of 9.01am in Stockholm.

H&M plans to add 425 shops to its total this year, with a focus on China and the US as it maintains its goal of increasing its store count by 10 per cent to 15 per cent a year.

H&M also plans to offer e-commerce in nine more markets such as Japan and Greece in addition to the 23 where it already has online operations. H&M forecast a January sales increase of 7 per cent, on a basis that includes value-added tax and excludes currency shifts.

Bloomberg