H&M to launch new store brand despite facing sales slowdown
Fashion chain H&M is launching a new store brand this autumn, despite facing a slowdown in sales in key European and US markets.
The Swedish retailer reported a 3% drop in operating profits to 3.15 billion krona (£2.8 billion) in the three months to February 28, citing lower than expected sales growth as well as higher markdowns in the first quarter.
Sales, including VAT, rose 7% to 54 billion krona (£48.8 billion). Key markets like the US grew 6% - but were flat when measured in local currency.
Chief executive Karl-Johan Persson said: "For fashion retail in general, market conditions were very tough in many of our large markets in central and southern Europe and in the US, and this was reflected in our sales."
However, Mr Persson said it was gaining share in a number of other markets, across Scandinavia, and eastern Europe, as well as Turkey, Russia, China and Japan.
H&M is now charging ahead with plans to open 430 new stores this year, and announced the roll out of a new brand of stores called ARKET.
ARKET will be the eighth brand to run under the H&M Group umbrella - adding to H&M, COS, & Other Stories, Monki, Weekday, Cheap Monday and H&M Home - offering home goods and clothes at a higher price range than its H&M brand.
The first store will be opened in London and online this autumn, before launching in Brussels, Copenhagen and Munich.
It comes amid a 4% drop in sales in the UK to 3.39 billion krona (£2.97 billion) for the first quarter - due in part to the weaker pound. In local currency terms, UK sales were up 5%.
Liberum retail analyst Adam Tomlinson said that while poor first quarter sales numbers were expected, and lower profits should "not come as a huge surprise", investors are still concern ed about the rate of returns from new stores.
"The company has not yet addressed the issues of falling returns from new space which has been a large factor in declining margins.
"In addition we see further cost pressures as rolling out online capability across new territories is likely to cannibalise existing store sales."
H&M's Stockholm-listed shares were down 5.9%.
But its chief executive said H&M will be looking to potentially close, upgrade or rebuild stores across its brands, particularly in markets that under-performed
The group would also be investing in its supply chains, focusing on greater automation and lead times in an attempt to adapt to changing consumer trends.
"Retail is going through a challenging period of change in which customers' shopping behaviour and expectations are changing at a fast pace as a result of growing digitalisation.
"This is an accelerating development which also brings great opportunities," Mr Persson said.