H & M Hennes & Mauritz AB Three-month report

First quarter (1 December 2019 – 29 February 2020)

• The H&M group’s net sales increased by 8 percent to SEK 54,948 m (51,015) in the first quarter. In local currencies, net sales increased by 5 percent compared with the same quarter the previous year. Excluding the markets that were most affected during the quarter by the situation linked to the coronavirus Covid-19, the H&M group’s sales increased during the quarter by 7 percent in local currencies.
• Online sales increased by 48 percent in SEK and 44 percent in local currencies.
• Gross profit increased by 10 percent to SEK 28,034 m (25,526). This corresponds to a gross margin of 51.0 percent (50.0).
• Profit after financial items more than doubled to SEK 2,504 m (1,043), which shows that the company’s transformation work has had a good effect. Excluding the effects of IFRS 16, profit after financial items increased to SEK 2,418 m (1,043).
• The group’s profit after tax increased to SEK 1,928 m (803), corresponding to SEK 1.16 (0.49) per share. Excluding the effects of IFRS 16 profit after tax increased to SEK 1,862 m (803).
• The composition and the level of the stock-in-trade continued to improve also in the first quarter. Adjusted for currency effects the stock-in-trade decreased by 12 percent. The book value of stock-in-trade in SEK represented 15.7 percent (18.6) of sales for the rolling twelve months.
• As a result of the rapid global spread of the Covid-19 virus, sales have decreased significantly. As at 31 March, a total of 3,778 out of 5,065 stores were closed. Net sales in March 2020 decreased by 46 percent in local currencies compared with March 2019. Since mid-March all of the stores have been closed in several of the group’s largest markets.
• Online sales in March 2020 increased by 17 percent in local currencies. Digital sales channels remain open in 47 of the group’s 51 online markets.
• In China demand has gradually started to recover. More or less all of the group’s stores have now re-opened and sales have gradually increased.
• Measures have been taken in all parts of the business to mitigate the impact of the coronavirus, including in the following areas:
  • As communicated previously, the board is proposing to the 2020 AGM that the dividend is cancelled
  • Adjustments to product purchasing and purchasing plans
  • Investments deferred and scaled back
  • Rents: dialogue has been started with all landlords
  • Reduced working hours for tens of thousands of employees
  • Credit facilities are being expanded to further strengthen the liquidity buffer
  • Increased activities in the digital channels

“The strong improvement in profit in the first quarter shows that customers appreciate our assortment and that our transformation work is having a good effect. The outbreak of coronavirus and the extraordinary public measures taken to reduce the spread of the virus have put people, communities and companies in an exceptional situation. The safety of our employees and customers is our highest priority and we are cooperating fully with the authorities. We are working very hard to manage this challenging situation in the best possible way, and in view of the dramatic decline in the market we have to make difficult decisions and take forceful action. However, I am convinced that as a company – once we are through this – we will continue to stand strong,” says CEO Helena Helmersson.

Comments by Helena Helmersson, CEO  

“We are working very hard within the H&M group to manage the challenging situation caused by the coronavirus Covid-19 in the best possible way. The rapid course of events and the extraordinary public measures taken to reduce the spread of the virus have put people, communities and companies in an exceptional situation. The safety of our employees and customers is our highest priority and we are cooperating fully with the authorities. With the dramatic decline in the market we have to make many difficult decisions and take forceful action. I am convinced that as a company – having taken the right measures to get through this tough period – we will continue to stand strong. With customers all over the world, amazing employees and sound finances, we are very well positioned for this.

First quarter 2020
Our profit more than doubled in the first quarter. The strong increase is a result of a much-appreciated assortment with the best combination of fashion, quality, price and sustainability. Our focus on the customer offering and the customer experience continued to drive full-price sales, with decreased markdowns and an improved inventory level as a result. The positive development, which began already in 2019, shows that our transformation work is effective and our long-term investments are paying off.

Sales increased by 8 percent in Swedish kronor and 5 percent in local currencies. The growth in online sales was 48 percent in Swedish kronor and 44 percent in local currencies. In the second half of the quarter the group’s sales were muted by the rapid outbreak of coronavirus, particularly in China where sales decreased by 84 percent in February. Excluding China, Hong Kong, Singapore, Macau, Japan and Taiwan, sales increased by 7 percent in local currencies.

Measures to mitigate negative impact of the coronavirus situation
The second quarter will naturally be very negatively impacted by the corona situation and will therefore be loss-making. As at 31 March 3,778 of our 5,065 stores were temporarily closed, in a total of 54 markets – including all our stores in Germany, the US, the UK, France, Italy and Spain, which are among our largest markets. Demand has also been subdued in many other markets due to the worry and uncertainty caused by the pandemic. In China, however, a gradual recovery can be seen as the stores have reopened.

With each day that we are having to keep stores closed, the situation is becoming increasingly demanding. We have therefore brought in a range of forceful measures (see page 3) in areas such as purchasing, investments, rents and staffing. All parts of the business are included, and all costs are being reviewed.

Regrettably, we have had to start implementing reduced working hours in the markets affected by the corona situation. Globally, this will affect tens of thousands of employees in all parts of the business, although it is not currently possible to specify an exact number. Local legislation has different definitions and conditions for temporary lay-offs or reduced working hours. We are also reviewing the need for any redundancies. Senior executives have taken a temporary 20 percent pay cut.

In the light of this, I welcome the board’s decision to propose to the 2020 annual general meeting that the dividend is cancelled, and I share the board’s conviction that this is the best thing to do to secure our continued freedom of action. To strengthen our liquidity buffer, a number of sources of financing are also being evaluated and prepared.

The current and extraordinary situation will have huge consequences for many companies, both in our sector and others. Dialogue between companies and governments is particularly important in a situation such as this, and the H&M group appreciates the various support measures that governments have introduced to ease the cost burden on companies in the markets concerned. In our view, however, further measures will be needed.

The H&M group wants to help in the fight against corona. We have temporarily switched parts of our suppliers’ production to making personal protective equipment for hospital staff. The H&M Foundation is also supporting the COVID-19 Solidarity Response Fund, which was started by WHO and other partners in order to contribute to understanding the spread of the virus, making protective equipment available and speeding up development of a vaccine.

The situation we find ourselves in cannot be compared with anything we have ever experienced before.It puts an incredible strain on people, our communities and, of course, also on us as a company. All this will also speed up the transformation already taking place in our sector. We believe that the major changes in consumer behaviour we are now seeing will further increase the digitalisation of society as well as the focus on sustainability – areas that remain very important to us. Right now, we are acting based on the very rapid changes in the world around us while also ensuring that we have the best customer offering. Our strong earnings trend until hit by the corona situation shows that we have a firm foundation. With our committed employees, strong culture and unique brands I am convinced that, once we are through this, we will still stand strong as a company. We will continue our extensive transformation work and will keep working on our ambition to lead the development towards a more sustainable fashion industry. To find out more please read our Sustainability Performance Report 2019, published recently at hmgroup.com.”

Telephone conference in conjunction with the three-month report

In conjunction with the release of the three-month report on 3 April 2020, a telephone conference for the financial market and media will be held in English at 09:00 CEST hosted by CEO Helena Helmersson, CFO Adam Karlsson and Head of IR Nils Vinge.

For login details to the telephone conference please register at hmgroup.com or via this link:

http://emea.directeventreg.com/registration/2174391

To book interviews with CEO Helena Helmersson and Head of IR Nils Vinge in conjunction with the three-month report on 3 April, please contact:

Kristina Stenvinkel, Communications Director
Phone +46 8 796 39 08
Email: stenvinkel@hm.com

 

Contact

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

For more information about the H&M group visit hmgroup.com.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 (CEST) on 3 April 2020. This interim report and other information about the H&M group, is available at hmgroup.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, & Other Stories, H&M HOME and ARKET as well as Afound. The H&M group has 51 online markets and more than 5,000 stores in 74 markets including franchise markets. In 2019, net sales were SEK 233 billion. The number of employees amounts to approximately 179,000. For further information, visit hmgroup.com.