H&M said price cuts and cold weather were to blame for a slump in profits at the start of the year, and warned more discounting would be needed to lift flagging sales at the fashion group.
Pretax profit at the Swedish clothing retailer plunged 61% to 1.26bn Swedish krona (£108m) in the first quarter ending 28 February, after weaker sales in previous months left it with a backlog of clothing to sell.
Karl-Johan Persson, the H&M chief executive, said trading at the start of the year had been tough. “The high level of clearance sales combined with unusually cold winter weather had a negative impact on the sales of the spring garments,” he added.
Stock levels were 7% higher in the first quarter compared with the same period a year earlier, partly because of the retailer’s continued expansion but also because of weaker sales, which dipped 1.5% to 53,554 krona over the three months.
The group, which also includes the & Other Stories and Cos store brands, said that higher levels of stock would lead to more price discounting in the next three months.
Persson said: “We take a long-term view that together with our knowledge and experience enable us to navigate through times such as this … [and] lead us back to healthy growth in both sales and profitability.”
First-quarter sales fell 1% in the UK, H&M’s third biggest market behind Germany and the US. The retailer has more than 4,700 stores worldwide, employing about 171,000 people.
The retailer is planning to open 220 new shops this year, most of which will be H&M stores, the company said. Of those, 45 will include H&M home range products, and it also plans to open eight standalone H&M home stores.
Shares fell more than 5% to their lowest level since 2008 after the bigger-than-expected profits fall was announced.
Michael Hewson, the chief market analyst at CMC Markets, said the profits slump prompted investors to offload shares in other retailers. “Swedish clothing giant H&M reported its worst performance in over a decade for first-quarter sales as unsold inventory prompted a significant markdown in margins as the company cut prices to shift the backlog< he added. “This has seen UK retail stocks lag behind today’s surge in European stock markets, as the difficult retail environment continues to keep pressure on margins.”