Source: Company reports/Fung Global Retail & Technology

1Q17 Results

Swedish fast-fashion retailer Hennes & Mauritz AB reported SEK47.0 billion in net sales in 1Q17, slightly below the consensus estimate of SEK48.1 billion and up 8.0% year over year. Constant-currency sales increased by 4.0% in the quarter and UK sales increased 5.0%. The company did not provide comparable-store sales growth rates. The gross margin expanded by 10bps in 1Q17 to 52.1%, reversing the trend of gross margin erosion in the past year. The SG&A margin increased by 80 bps year over year to 45.3% in the quarter. The adjusted operating margin contracted by 80 bps year over year to 6.7%. EPS was SEK1.48 for 1Q17, down 3.9% year over year and above the consensus estimate of SEK1.39. In 1Q17, the company opened a net of 42 stores, including 39 H&M stores, five COS and three & Other Stories stores. H&M opened its very first store in Kazakhstan—in Almaty—in mid-March.

Outlook

The company stated that group sales including VAT in the period March 1 to March 28, 2017 increased by 7% year over year in constant currencies. H&M is targeting to increase group sales by 10%-15% in constant currencies in FY17. For FY17, H&M plans to open 430 new stores, at the lower end of its company target to increase global stores by 10%-15% annually. For the remainder of FY17, H&M will enter four more new markets for the first time including Colombia, Iceland, Vietnam and Georgia. H&M also plans to launch online sales in six new markets including Turkey, Taiwan, Hong Kong, Macau, Singapore and Malaysia, which are planned for 1H17. H&M will launch new brand ARKET and open the first store in London and online in 18 European markets in early autumn 2017. The first standalone H&M Home stores are planned to open in 2018. FY17 revenue consensus estimates stand at SEK212.5 billion, implying annual year over year growth of 10.5%. Consensus expects operating profit at SEK26.2 billion, implying an operating profit margin of 12.3%. The FY16 consensus EPS estimate is SEK12.25, implying a year over year EPS increase of 8.8%.