STOCKHOLM (Reuters) - Sweden’s H&M disappointed investors with a 10 percent tumble in quarterly profit, the world’s second largest fashion retailer blaming investment aimed at boosting its online business for the decline.
Profit fell for the third straight year in 2018 because of competition from the likes of Zara, Primark and ASOS and as the shift to online shopping hit trading at its core budget stores.
“It has been a challenging year for H&M group and the industry but after a difficult first half, there are signs the company’s transformation efforts are beginning to take effect,” CEO Karl-Johan Persson said in a statement.
H&M has invested heavily in logistics and digital technology and is reviewing its mix of stores and brands, while also working on a new H&M store concept.
H&M spent around 450 million Swedish crowns on logistics and technology in the last three months of its financial year, including resolving problems it flagged earlier in 2018 and switching to a new online platform in its biggest market Germany.
“H&M’s investments in its offer are more than the market anticipated and may disappoint those looking for signs of margin normalization,” said RBC Europe analyst Richard Chamberlain.
Shares in the Swedish company were down 1.7 percent after pre-tax profit for September-November shrank for the sixth straight quarter to 4.4 billion crowns ($482 million).
That was down from 4.9 billion crowns a year earlier and well below analysts’ mean forecast in a Reuters poll for an increase to 5.1 billion crowns.
Persson said improved collections generated better full-price sales and lower markdowns towards the end of 2018, predicting markdowns should be down around 1 percentage point in the first quarter, while inventories should also fall.
The company said it planned to add a net 175 stores in 2019, with almost half of them to be newer fashion brands like COS, Arket and Weekday - part of its drive to mimic the success of Inditex by targeting multiple sub-sections of the market.
H&M hopes recent heavy investment will eventually drive a recovery in profitability and said it will trim capital spending in 2019, expecting to invest 10.5 billion to 11 billion crowns in 2019, down from 12.8 billion in 2018.
Its sales in Germany rose 2 percent in the quarter, bucking a weaker market. Data out on Thursday showed German retail sales plummeted by 4.3 percent on the month in December, the fastest fall in 11 years.
H&M company proposed an unchanged dividend of 9.75 crowns per share for 2018. Several analysts had forecast the retailer would lower its annual payout for the first time since its 1974 listing.
“Only time will tell whether an unchanged dividend was the result of misplaced optimism, given mixed signs from current trading,” wrote Jefferies analyst James Grzinic.
($1 = 9.0221 Swedish crowns)
Reporting by Anna Ringstrom; Editing by Emma Thomasson and Mark Potter