Despite feeling the pinch from an economic slowdown in China, Swedish fashion giant Hennes & Mauritz (H&M) says it plans to continue to bet big on the country.
It blames an 11 per cent drop in quarterly net profit on adverse currency swings and mild November weather across several divisions, especially H&M China.
This fell to 5.53 billion Swedish kronor (US$649 million) for the three months to November 30 from 6.22 billion kronor for the same period a year earlier. Revenue grew 14 per cent to 56.5 billion kronor in the fiscal quarter from 49.7 billion kronor. Excluding value-added tax, sales totaled 48.7 billion kronor.
While acknowledging that sales growth in China has slowed dramatically – coming in a 4 per cent in local currencies for the quarter compared with 34 per cent – CEO Karl-Johan Persson says his faith in the country’s long-term prospect is unshaken.
“We will open most new stores in China this year,” he says. The company plans 425 new stores globally in the fiscal year, with China and the US its main expansion markets.
Persson says his confidence in China is based on the belief that the country will gradually pivot toward a consumer-driven economy, creating vast opportunities for retailers.
Affluent shoppers 35 years and younger as well as internet users are still propelling the consumer market there, which is expected to jump to $6.5 trillion in sales by 2020, an increase of 54 per cent from last year, according to the Boston Consulting Group.
H&M also plans to continue online expansion, with plans to open online stores in Japan and in eight other markets this year.
The group’s gross margin has slipped to 57.5 per cent from 60.4 per cent, mainly because of the stronger dollar. H&M sources most of its clothes in Asia, where it pays in dollars.