H&M takes the world by storm after strongest profit since 2007

Swedish fashion apparel retailer Hennes & Mauritz is set to a star year: after reporting its strongest annual profit in eight years, H&M will be conquering the market in Latin America, Asia and the US.

Hennes and Mauritz AB (H&M) reported Wednesday its steepest gain in annual profit since 2007.

Karl-Johan Persson, CEO at H&M spills the beans on the company's success: “Well-received collections for all our brands and continued strong expansion both in stores and online have helped increase our market share and have further strengthened our position in the market.”

Persson agrees with the general sentiment when he says that "2014 has been a very good year for H&M. Over the full year we increased our sales by 14 percent in local currencies and by 18 percent in Swedish kronor, to SEK 176.6 billion including VAT. Profit for the year after tax, before the allocation to HIP, increased by 18 percent to over SEK 20 billion".

Commenting the first weeks of the year, Persson highlights that “We have another exciting year ahead of us, with new opportunities and challenges. 2015 has got off to a good start, with strong sales in both December and January. Although the increasingly expensive US dollar will affect our sourcing costs, we will make sure that we always have the best customer offering in each individual market in terms of fashion, quality, price and sustainability, which form the basis of our business idea.”

The warning concerning the consequences of a strong US dollar dragged the stock, with shares falling as much as 2.8 percent.

More investment in tech in the year to come

“While we are continuing our long-term investments, at the same time we can see our investments in areas such as online starting to bear fruit. This year we opened our online store in four new large markets: France, Italy, Spain and China,” advances H&M’s CEO.

This is a tried and tested formula for the retailer, which explains that the 379 store openings registered in 2014, together with further improvements in their e-commerce arm, “have naturally contributed to the year’s good sales development.”

Following this strategy, the Swedish group will be rolling out H&M’s online store to nine new markets in 2015: Belgium, Bulgaria, the Czech Republic, Hungary, Poland, Portugal, Romania, Slovakia and Switzerland.

In this vein, in 2015 H&M plans to keep opening new stores, estimating a net addition of around 400 new stores. New markets planned for 2015 are Taiwan, Peru, Macau, South Africa and India. “The greatest expansion will take place in existing markets where there is still great potential to grow further. The most new stores will open in China and the US, but also in other large markets such as Poland and Germany. COS and & Other Stories plan to open even more stores this year than in 2014,” adds the company.

Besides, H&M will continue expanding its offering, with an enhanced shoe collection which launched in selected H&M stores and online.

As unveiled by Persson, long-term investment costs would rise 400-600 million Swedish crowns this year after an 850 million increase last year, as it launches websites in nine more markets and a new range of beauty products, reported Fox Business.

Results for Q4 FY’14 miss estimates

The company, which does not give a figure for total investments, said pretax profit for the three months ended November rose 7 percent to 7.80 billion crowns, missing analysts' average forecast of 7.96 billion, due in part to booking a staff incentive payout.

"These are disappointing results, as margins continue to decline," said Bernstein analyst Jamie Merriman, rating the stock as ‘underperform’ in a note to investors. "We expect continued margin compression."

H&M said markdowns in its fiscal fourth quarter were lower than the year before, while it expects markdown levels to be roughly the same as a year ago in the first quarter. However, cost inflation was higher in the fourth quarter, a trend H&M expects to continue in the first quarter, with a stronger dollar likely to increase sourcing costs throughout the year.