Source: Company reports/Fung Global Retail & Technology

FY16 Results

Swedish fast-fashion retailer Hennes & Mauritz AB reported SEK192.3 billion in net sales excluding VAT in FY16, slightly below the consensus estimate of SEK192.8 billion and up 6.3% year over year. Net sales including VAT increased by 7.0% year over year on a constant currency basis. The company did not provide comparable stores sales growth rates. The gross margin contracted by 180 bps in FY16 to 55.2%, negatively affected by the strong US dollar on purchasing costs and increased discounting activity. The SG&A margin increased by 70 bps year over year to 42.8% in FY16. The adjusted operating margin also contracted by 250 bps from 14.9% in FY15 to 12.4% in FY16. Diluted EPS was SEK11.26 for FY16, down 10.9% from SEK12.63 in FY15 and above the consensus estimate. In FY16, the company opened a net of 427 stores, including 352 H&M stores, 41 COS and 15 & Other Stories stores.

4Q16 Results

In 4Q16, H&M reported SEK52.72 billion in net sales excluding VAT, representing an 8.3% year-over-year increase. The gross margin for 4Q16 contracted by 50 bps year over year to 57.0% and operating margin declined by 60 bps year over year to 13.9% from 14.5%. For 4Q16, EPS increased by 6.9% year over year from SEK3.34 to SEK3.57. The company opened a net 216 stores in 4Q16, including 178 H&M stores, 17 COS stores and 9 & Other Stories Stores.

Outlook

The company introduced a new growth target to increase group sales by 10%–15% in constant currencies, reflecting the growing impact of the online sales contribution. The company stated that group sales including VAT in the period 1 January to 29 January 2017 increased by 11% year over year in constant currencies, higher than consensus of 10% year-over-year growth. For January, there is a negative calendar effect of approximately 2%, which occurs at the end of the month. 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. H&M will enter new markets for the first time, including Kazakhstan, 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. The H&M group also plans to launch one or two new brands in FY17. FY17 revenue consensus estimates stand at SEK214.7 billion, implying annual year-over-year growth of 11.7%. Consensus expects operating profit of SEK26.6 billion, implying a year-over-year operating profit increase of 11.7%. The FY16 consensus EPS estimate is SEK12.46, implying a year-over-year EPS increase of 10.7%.