New brand costs dent H&M's Q4 profits

AP News
Posted: Jan 30, 2013 5:54 AM

STOCKHOLM (AP) — Fashion retailer Hennes & Mauritz AB is to press ahead with its global expansion plans with the opening of over 300 stores this year, even though it saw a modest decline in fourth-quarter earnings that the Swedish company blamed in part on higher investments in online shopping and the launch of a new brand.

Net profit in the quarter was 5.29 billion kronor ($825 million), 1 percent down from 5.36 billion kronor a year earlier, the company said Wednesday. The decline broke a three-quarter streak of rising earnings for H&M, which specializes in offering trendy fashion lines at low prices.

However, sales rose 5 percent to 37.9 billion kronor, from 36.2 billion kronor in the fourth quarter of 2011.

Chief Executive Karl-Johan Persson said H&M "stands strong" despite challenging market conditions and will continue expanding this year. The company opened 304 new stores worldwide during 2012 and plans to add 325 more this year, with the fastest rate of expansion in China and the U.S.

Persson said long-term investments in a range of areas, including online shopping and the upcoming launch of a new brand, & Other Stories, weighed on results.

"These long-term investments have created cost increases and to a great extent have not yet generated any revenue," Persson said. "However, we consider these investments to be both necessary and wise as they aim to secure future expansion and profits and thereby further strengthen H&M's position."

H&M shares dropped 2.7 percent to 228.40 kronor in midday trading in Stockholm.

Daniel Ovin, an analyst at CAI Cheuvreux Nordic in Stockholm, said the report was largely in line with expectations, but the cost of investments was higher than anticipated. He also said H&M's sales forecast for January was below expectations.

H&M's main competitor is Spain's Inditex, the owner of Massimo Dutti and Zara. Founded in 1947, H&M has more than 2,800 stores in 48 countries. Its other brands include the higher-priced COS and urban fashion labels such as Monki, Weekday and Cheap Monday.