H&M Eyes Internet and Store Expansion to Counteract Profit Plunge

Europe's second largest clothing retailer Hennes & Mauritz AB is hoping online and store expansion will counteract its second quarter plunge in profits.

H&M reported a 11% plummet in second quarter profits, pulled down by a stronger Swedish krona and the extremely cold weather in March and early April that forced shoppers in recession-hit Europe to buy over the Internet.

H&M plans to open some 350 new stores in 2013, a majority of which will come up in China and the US. The company will begin online sales in America this August and is on track to roll out multiple online stores in several countries next year, chief executive Karl-Johan Persson said in the statement.

The Swedish firm said net profit dropped to 4.66 billion Swedish kronor ($723.2m, €540m) in the March to May second quarter, from 5.22 billion kronor a year earlier. Analysts had expected a net profit of 4.88 billion kronor.

However, the third quarter beginning 1 June has got off to a good start, the company said in a statement. H&M logged a 14% increase in sales between 1 June and 17 June 2013, as compared to the year-ago period.

H&M's stock was trading 1.24% higher at 1:45 pm in Stockholm.

"The second quarter has been a period of intense activity, with the opening of nearly 100 new stores. We are continuing our strong expansion in Asia where we now have 200 stores and where we are now starting to establish our newer brands like COS and Monki. (The second) quarter has been marked by substantial negative currency translation effects, which have had a negative impact on both sales and profits in SEK. Sales in local currencies increased by 5%," Persson said.

H&M's rival Inditex, Europe's biggest clothing maker and the owner of the Zara chain, reported its weakest first-quarter profit growth in four years on 12 June.

Spain-based Inditex's profits rose 1.4% in the February to April first quarter after cold weather across Europe prevented shoppers from purchasing summer clothing.