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H&M profit falls less than expected after it curbs discounts

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H&M profit falls less than expected after it curbs discounts
FILE PHOTO: The logo of H&M is seen in a display window of a store in Zurich, Switzerland January 7, 2019. REUTERS/Arnd Wiegmann   -   Copyright  ARND WIEGMANN(Reuters)
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STOCKHOLM (Reuters) – Swedish fashion retailer H&M reported a smaller than expected fall in first-quarter pretax profit on Friday as it sold more products at full price and saw an improvement in margins.

H&M, the world’s biggest apparel retailer after Zara owner Inditex, has seen profits shrink and stocks pile up in recent years due to slowing footfall at its core-brand stores in the face of digitalisation of the sector, mounting competition and not reacting fast enough to demand swings.

The retailer’s pretax profit fell for the seventh straight quarter in December-February, to 1.04 billion Swedish crowns (£85.8 million). That was down from 1.26 billion a year ago, but was well ahead of the 708 million forecast in a Reuters poll of analysts.

H&M’s heavy investment in logistics, the integration of stores and online, and a review of its stores and brands to get back on track has been squeezing margins.

However, in the first quarter, the gross margin inched up to 50.0 percent, from 49.9 percent a year ago, defying forecasts for a fall to 49.4 percent.

H&M said that this month, from March 1-27, net sales rose by 7 percent in local currencies.

Markdowns fell in December-February in relation to sales and the retailer said it expects them to continue to decrease in the second quarter.

“Our ongoing transformation work has contributed to stronger collections with increased full-price sales, lower markdowns and increased market shares,” Chief Executive Karl-Johan Persson said in a statement.

H&M said that markdowns in relation to sales decreased by around 1.5 percentage points in the first quarter from a year earlier.

(Reporting by Helena Soderpalm and Esha Vaish; Editing by Susan Fenton)

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