Hennes & Mauritz AB on Thursday reported a 21 percent fall in second quarter net profit, missing estimates, as the retailer increased clearance sales to shift unsold stock and experienced logistical problems in it shifts to a more efficient supply chain.
The Swedish fashion retailer said it entered the second quarter carrying too much stock, blaming imbalances in its product ranges, combined with interruptions to its flow of goods in a number of its major sales markets.
The high inventory level will mean increased markdowns in the third quarter 2018 compared with the same quarter the previous year, it said.
According to the release, The H&M group is going through a period of transformation to make the company even more customer-driven, efficient and flexible. This includes necessary transitions to new logistics systems that will allow even better availability, speed and transparency. However, sales and profits were temporarily affected by interruptions in connection with such transitions carried out in the second quarter in major markets such as the USA, France, Italy and Belgium.
According to Karl-Johan Persson, CEO “The rapid transformation of the fashion retail sector continues, and we are in a transitional period that is both exciting and challenging. Challenging because it is complex, extensive and the pace of change is fast. Exciting because we can see positive trends and big potential in connection with our improvement work and investments.”
Persson further added, “As we signalled previously, it was going to be a tough first half-year. We went into the second quarter carrying too much stock and we still had some imbalances in the H&M assortment – something that we are gradually correcting. As part of our transformation work we are transitioning our logistics systems to make our supply chain even faster, more flexible and more efficient. These transitions are complicated and can result in temporary interruptions, as unfortunately occurred during the second quarter in some of our major sales markets. This negatively impacted sales in the USA, France, Italy and Belgium, as well as online sales in the Nordic region.”
H&M Home will broaden its product range in the second half of 2018 to include lamps and furniture.
For 2019 Bosnia-Herzegovina is planned to become a new H&M store market and Mexico a new H&M online market.
“Yet in a number of markets sales developed positively; in Sweden, Norway, Denmark and Eastern Europe we grew considerably faster than the market. This shows that we are on the right track and that our digital investments and improvement work are starting to have results. Overall, however, total sales for the quarter were not satisfactory, which meant that inventory levels were still too high at the end of the period,” said Persson.