Source: Company reports/FGRT

FY17 Results

In the year ended November 30, 2017, H&M reported net sales of SEK 200,004 million, slightly below the consensus of SEK 203,277, as recorded by S&P Capital IQ, and up by 4.0% year over year. For the full year:

• Sales including VAT increased by 3% in local currencies and by 4% in Swedish krona.
• Gross margin diminished by 118 basis points to 54.0%. H&M noted that markdowns with regard to sales increased by 1.3 percentage points in 4Q17, due to weak autumnal sales growth and reduced footfall in H&M’s physical stores.
• SG&A as a percentage of sales grew by 100 basis points while the operating margin shrank by 210 basis points during the year. H&M observed slow sales development at its physical stores and remarked that sales from its website have not yet grown enough to offset the reduced footfall.
• Diluted EPS shrank by 13.1% to SEK 9.78 during the year, but was marginally above the consensus estimate of SEK 9.71.
• H&M opened 479 stores and closed 91 stores, taking total store numbers to 4,739 at year-end. The increase was equivalent to a 9% rise in store numbers, implying that sales growth during the year was sustained purely by new openings.

President and CEO Karl-Johan Persson acknowledged H&M’s underperformance in the year, stating:

Our performance during 2017 was mixed, with progress in some areas, but also difficulties in others. We delivered growth of 3% in 2017, which is clearly below our expectations.” “… All in all, we feel 2017 was a year where we made more steps forward and did more groundwork for the future, but we have also made some mistakes that have slowed us down.

 Management noted weakness in shopper traffic as more sales shifted online.

4Q17

In the fourth quarter, H&M’s sales including VAT amounted to SEK 58,481 million representing a decrease of 4% as reported and 2% in local currencies. Sales excluding VAT were SEK 50,407 million, representing a fall of 4.4%. Gross margin narrowed by 160 basis points to 55.4% and operating margin shrunk by 440 basis points to 9.7%.

Outlook

H&M provided no numerical guidance but stated that the company needs to accelerate its transformation journey. This includes the continued integration of physical and digital stores, and more store closures and fewer openings in the H&M brand’s store portfolio. In FY18, the group plans to open around 390 new stores and close 170 stores, resulting in a net addition of 220 stores.H&M announced that during the year it will launch Afound, an off-price marketplace for fashion and lifestyle brands from H&M’s stable as well as from external retailers. It expects to open a physical store in Stockholm simultaneously, to complement Afound’s online shop. The group also stated that it will begin selling the H&M and H&M Home brands on Alibaba’s Tmall platform from March 2018. H&M will hold a capital markets day in Stockholm on February 14, 2018, when it will provide more information on its transformation and strategy for the group. For FY18, analysts expect H&M’s revenues to grow by 4.6%, to SEK 209,182 million. Consensus calls for operating profit to climb by 2.5% to SEK 21,082 million and for diluted EPS to rise by 11.2%, to SEK 9.97. These estimates were collated before the latest results were announced.