Swedish fashion retailer H&M posted a drop in profits for the first half of the year dragged down by the mass of unsold clothes which has piled up over the years.
H&M said profits “after financial items” were SEK 7.7 billion ($812 million) over the period up to May 31. Pretax profit in the March to May quarter slumped to SEK 6.01 billion ($670 million) from the SEK 8.4 billion in the previous corresponding period.
The world’s second largest fast fashion retailer said its inventory levels have increased further and it has suffered from logistics issues that interrupted shipments.
“As we signalled previously, it was going to be a tough first half-year,” said group CEO Karl Johan Persson. “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.”
Persson said as part of their transformation work, they are transitioning their logistics systems to make their 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,” he said. “This negatively impacted sales in the USA, France, Italy and Belgium, as well as online sales in the Nordic region.”
The retailer has struggled to deliver new items to its stores in the latest quarter, which prompted it to cut prices even more to clear out unsold clothing.
Persson said in a number of markets sales developed positively.
“In Sweden, Norway, Denmark and Eastern Europe we grew considerably faster than the market,” he said. “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.”
Persson said they plan to open around 390 stores this year and close 150 which will result in a net addition of 240 new stores for the year.
He said most of the H&M store openings will be in emerging markets while the closures will take place in established markets.
Last month, the retailer launched its Afound brand, an innovative market place in Sweden with hundreds of specially selected fashion and lifestyle brands offering products at bargain prices.
Persson said despite the challenges of the first half, the group is moving in the right direction and said they “believe that there is a gradual improvement and that we will see a stronger second half.”
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