The second-largest clothing retailer in Europe – Hennes & Mauritz AB, commonly known as H&M, made an official statement today, revealing that costs of the company for online expansion influenced on its profit for the first quarter of 2014.
H&M posted an 8.7% increase of its operating profit, which jumped to 3.4 billion kronor (526 million dollars). The company also shared that the increase would have been 14%, if it was not for the companys long-term investment costs.
The Chief Executive Officer of the company – Mr. Karl-Johan Persson said in the statement, which was cited by the Financial Times: “Sales have got off to a good start in a fashion retail market that in many places is still characterised by a challenging macroeconomic situation, and we have continued to gain market share.”
Mr. Persson also shared in the statement that the company had been considering to open 375 new stores in 2014 all over the world.
H&Ms net income rose by 7.8% and reached 2.65 billion kronor, which however missed analysts average estimate of 2.89 billion-kronor.
One of the analysts who work for Societe Generale – Ms. Anne Critchlow commented in a telephone interview for Bloomberg: “The operating cost grew more than everyone expected. It’s great that H&M is diversifying away from the price competition in the core concept, so there is no issue with that over the longer term, but those costs disproportionally hit the first quarter.”
As reported by Bloomberg, Jamie Merriman, who is an analyst of Sanford C. Bernstein also shared in a note: “Overall, these are a disappointing set of results. While part of this miss can be attributed to long-term investments, we believe it is also indicative of weak like-for-like sales performance and price investment, as the company tries to compete in the fast-growing and increasingly populous value-apparel world.”
Over the last few years H&M has been making large investments betting on global expansion, especially in Australia, the Philippines and India. The company also is increasingly relying on its online operations and even plans to open four new ones – in China, Italy, Spain and France – by the end of 2014, according to the words of Mr. Persson.
Hennes & Mauritz AB (H&M) fell by 4.14% to 277.90 kronor by 10:13 GMT in Stockholm, marking a one-year change of +19.68%. The company is valued at 423.45 billion kronor. According to the Financial Times, the 28 analysts offering 12-month price targets for Hennes & Mauritz AB have a median target of SEK 302.50, with a high estimate of SEK 355.00 and a low estimate of SEK 185.00. The median estimate represents a 4.35% increase from the previous close of 289.90 kronor.
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