H&M will keep expanding aggressively next year despite a 1.3% year-on-year drop in fourth-quarter profit, which fell to 5.29 billion kronor ($830 million). The clothing retailer, which is the world’s second-largest by sales, said that sales last quarter were unexpectedly slow. However, the drop in profit was still lower than analysts’ forecasts.
The appreciation of the Swedish krona against the euro crimped H&M’s profit last quarter (the Eurozone is H&M’s biggest market), as did its aggressive push into online sales and the costs associated with the launch of a new brand called “& Other Stories,” which is part of a bid to compete with rival fast-fashion retailer, Inditex (which owns Zara).
Yearly sales were up roughly 7%, while fourth-quarter sales still rose to 32.5 billion kronor, from 30.95 billion kronor for the same period a year ago. This in spite of a challenging retail climate in Europe, where recessions across the region, lingering job crises, and austerity cuts have curtailed consumer spending.
Despite the grim outlook in Europe, H&M intends to press on with rapid expansion. It said today it will open 325 new stores this year—nearly 20 more than it opened last year. While most of these will be in China and the US, where the company is expanding the fastest, H&M also plans to enter five new markets, namely, Chile, Estonia, Lithuania, Serbia and Indonesia. UBS analyst Adam Cochrane told Reuters that H&M is keeping its eye on the big picture:
“For the medium term, they’re trying to develop more brands,” Cochrane said. H&M is “entering five new countries this year, they’re laying down 12 percent more space … So in terms of their own strategy, I actually think that they are sticking to it, and it makes long-term sense.”
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