1Q16 RESULTS

Swedish fast-fashion chain H&M reported revenue of SEK 43,691 million in 1Q16, which ended February 29, 2016. This was an increase of 8.5% from SEK 40,276 million in 1Q15, and broadly met the consensus estimate of SEK 43,702 million. The gross margin decreased by 320 basis points, from 55.2% in 1Q15 to 52.0% in 1Q16. The company stated that sales markdowns increased by 1.4% compared to the same period last year, reflecting an effort to dispose of unsold winter garments due to the warmer autumn last year. The SG&A ratio rose by 83 basis points, from 43.6% in 1Q15 to 44.5% in 1Q16. The company noted that this was mainly due to an increase in long-term investments in IT and online operations, the broadening of H&M’s product range, and other expansion moves. The operating margin weakened by 403 basis points, from 11.5% in 1Q15 to 7.5% in 1Q16. The reported EPS was SEK 1.54 for 1Q16, down 29.4% from SEK 2.18 in 1Q15, but beating the consensus estimate of SEK 1.47.

SALES BREAKDOWN BY GEOGRAPHIC SEGMENT

The sales mentioned in the following paragraphs are inclusive of VAT and the percentage changes denote the change in reporting currency, not in local currency.

• H&M’s sales in Germany, its biggest retail market, declined marginally, by 0.1%, falling from SEK 8,671 million in 1Q15 to SEK 8,661 million in 1Q16.
• In the US, H&M’s second-largest market, sales jumped 17.6%, from SEK 5,422 million in 1Q15 to SEK 6,377 million in 1Q16.
• Italy showed a notable increase of 9%, with sales growing from SEK 1,887 million in 1Q15 to SEK 2,062 million in 1Q16.
• China, H&M’s largest market outside Europe and the US, saw sales increase by 7%, from SEK 2,148 million in 1Q15 to SEK 2,301 million in 1Q16.

While most other major markets saw a sales increase during the period compared to the same quarter last year, Switzerland saw a decline; year over year, sales in the country fell 6%, from SEK 1,585 million to SEK 1,492 million.

GUIDANCE

Karl-Johan Persson, the CEO of H&M, noted that sales and profits in the first quarter were negatively impacted by the unseasonably warm weather toward the end of 2015, and by the strong US dollar. He added that the currency volatility has continued to impact input costs for the second quarter, but said the company expects the effect to neutralize or have a slightly positive impact on the fourth quarter results. Persson added that the company continues its expansion internationally, and that it expects a net addition of 425 stores this year. He also said that the company will continue its investments in IT in order to reach its goal of e-commerce availability in 34 markets by the end of the year. To assert its stand on sustainability, H&M will be launching this year’s edition of its “Conscious Exclusive” line on April 7 in select stores and online. H&M will report its half-year performance on June 22, 2016.