H & M Hennes & Mauritz AB Full-year report

Full-year (1 December 2017 – 30 November 2018)

• The H&M group’s net sales, increased by 5 percent to SEK 210,400 m (200,004) in the financial year. In local currencies, net sales increased by 3 percent. The ongoing transition work contributed to gradually improved sales development and increased market share in most markets during the second half.
• The group’s online sales continued to develop very well during the year. Online sales amounted to approximately SEK 30 billion, an increase of 22 percent, thereby making up for 14.5 percent (12.5) of the group’s total sales. In local currencies the increase was 21 percent.
• Gross profit amounted to SEK 110,887 m (108,090). This corresponds to a gross margin of 52.7 percent (54.0).
• Profit after financial items amounted to SEK 15,639 m (20,809).
• Profit after tax amounted to SEK 12,652 m (16,184), corresponding to SEK 7.64 (9.78) per share.

Fourth quarter (1 September 2018 — 30 November 2018)

• The group’s net sales increased by 12 percent to SEK 56,414 m (50,407) during the fourth quarter. In local currencies, net sales increased by 6 percent, driven by increased full-price sales and lower markdowns.
• The group’s online sales increased by 24 percent in SEK and 20 percent in local currencies.
• Gross profit amounted to SEK 30,592 m (27,929). This corresponds to a gross margin of 54.2 percent (55.4)
• The cost of markdowns in relation to sales decreased by 0.6 percentage points.
• Profit after financial items amounted to SEK 4,352 m (4,873). The group’s profit after tax amounted to SEK 3,543 m (3,993), corresponding to SEK 2.14 (2.41) per share.
• Three new fulfilment centres with a total logistics area of around 230,000 square metres were opened during the quarter, providing increased capacity – particularly for online sales.
• The result was negatively affected by costs generated in connection with the earlier replacement of logistics systems, but also by activities in preparation for upcoming transitions.Together with negative year-end effects these costs amounted to approximately SEK 560 m in the quarter. 
• The board of directors proposes an unchanged dividend of SEK 9.75 (9.75) per share for the 2017/2018 financial year, to be paid out on two occasions in 2019. The board’s reasoning for the dividend proposal is that the underlying business is showing gradual improvements, investments (capex) will reduce in 2019 and the company remains in a strong financial position taking into consideration the capital structure target.
• Net sales in the period 1 December 2018 to 28 January 2019 increased by 4 percent in local currencies compared to the corresponding period the previous year.
• The platform was successfully replaced in Germany in January 2019. This means that all of H&M’s online markets are now on the new platform.
• Stronger collections and increased full-price sales mean that for the first quarter 2019 the company expects markdowns to be around 1 percentage point lower and a continued improvement in the inventory situation compared with the previous quarter.
• Online and physical stores are being increasingly integrated, while in parallel the rollout of H&M’s online store continues. Today H&M online is represented in 47 markets and during 2019 Mexico will be added as well as Egypt that will open via franchise.
• In 2019 the H&M group plans a net addition of 175 new stores, of which almost half will consist of newer brands. 
  

“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. Improved collections generated better full-price sales and lower markdowns towards the end of the year. This gave us confidence to accelerate our transformation plans in the fourth quarter with a particular focus on the upgrade of our logistics systems. Inevitably resulting in increased costs but will lead to a range of improvements for customers.”

Karl-Johan Persson, CEO

Comments by Karl-Johan Persson, CEO

Stronger collections translate to better full price sales

Against a backdrop of rapid changes in the fashion industry, in 2018 we accelerated our transformation to future proof our business, ending a challenging year for the H&M Group and the sector with strong signals that we are on track.

We built momentum through the year with growth of 3 percent overall and 6 percent in local currencies the fourth quarter. Importantly, performance was driven by more full-price sales and lower markdowns in the fourth quarter. While inventory levels were up year-on-year, levels and composition improved sequentially from the third to the fourth quarter. With a stronger customer offering and the ongoing improvements in buying and logistics, we expect this trend to continue. Therefore, markdowns are expected to be approximately 1 percentage point lower in the first quarter 2019 compared to the corresponding quarter last year.

While this performance is still some way off the targets that we set at the beginning of 2018, these positive signals confirm we’re making progress across all our strategic focus areas: to create the best customer offering; a fast, efficient and flexible product flow; a stable, scalable tech foundation; and adding new growth though store and online expansion.

We were able to outperform a number of markets in the fourth quarter. In the UK, for example, 38 percent online growth, offset against a 1 percent decline in stores, led to total growth of 8 percent. In several markets the total growth was driven by both physical stores and online. Among these were China (+24 percent), India (+43 percent) and Russia (+27 percent). However, other markets such as the USA and Norway, were more challenging.
In parallel with our global online roll-out, we are intensifying our store portfolio optimisation and we continue the integration of physical stores and digital channels.

Increased full-price sales confirm that customers appreciate our initiatives to regenerate H&M by refining the assortment and investing in the best mix of price, quality, fashion and sustainability. Improvements include a more convenient shopping experience with upgrades to our mobile applications, faster deliveries, new payment options and the continued introduction of click-and-collect and online returns in stores.

Ramping up our transformation initiatives

To create the best customer experience, we continue to invest in logistics and tech infrastructure. We opened three new fulfilment centres in the fourth quarter with a total of around 230,000 square metres. This means we can offer customers faster deliveries and a wider assortment while reducing the capacity constraints that slowed us down in some markets in 2018. We have also completed our online transition with investments in 2018, enabling us to successfully migrate online in Germany to the new platform earlier in January 2019. With this, all H&M online markets are now on the new platform.

Difficulties with the logistics upgrade in some of our markets earlier in 2018, led to additional costs also in the fourth quarter. Applying the lessons learned, we have now increased investments to secure upcoming transitions.

While these initiatives have a short-term impact on margin they will lead to continued improvements for our customers, driving increased profitability long-term. With the transformation now well underway, capital expenditure will reduce in 2019 compared to 2018 and we will continue to shift the balance of our investments towards digital.

Capitalising on the reinvention of retail

Changing consumer behaviour and technological innovation will continue to transform how and when people shop. We are building a business with the flexibility to respond to this constant evolution. We have further to go, and there will continue to be challenges ahead, but the progress we have made across our transformation priorities reinforces the strength of our strategy and gives us confidence to move ahead at full speed.

H & M Hennes & Mauritz AB (publ)
SE-106 38 Stockholm
Phone: +46-8-796 55 00, fax: +46-8-24 80 78, e-mail: info@hm.com
Registered office: Stockholm, Reg. No. 556042-7220

Information in this interim report is that which H & M Hennes & Mauritz AB (publ) is required to disclose under the EU Market Abuse Regulation (596/2014/EU). The information was submitted for publication by the abovementioned persons at 08:00 (CET) on 31 January 2019. This full-year report and other information about H&M, is available at about.hm.com.

H & M Hennes & Mauritz AB (publ) was founded in Sweden in 1947 and is quoted on Nasdaq Stockholm. H&M’s business idea is to offer fashion and quality at the best price in a sustainable way. In addition to H&M, the group includes the brands COS, Monki, Weekday, Cheap Monday, & Other Stories, H&M HOME and ARKET as well as Afound. The H&M group has 47 online markets and more than 4,900 stores in 71 markets including franchise markets. In 2018, net sales were SEK 210 billion. The number of employees amounts to more than 177,000. For further information, visit about.hm.com.