H&M Warns Of Larger Markdowns, Dollar Pressure

H&M Warns Of Larger Markdowns, Dollar Pressure

Fashion firm Hennes & Mauritz has warned that price reductions to help shift large stocks of winter wear after unusually warm weather and high purchasing costs due to a strong dollar would weigh on its first quarter. The Swedish company, the world's second-biggest fashion retailer after Zara owner Inditex, said it expected sales in January, the second month of its fiscal first quarter, to increase 7% in local currencies from a year ago. Bernstein analyst Jamie Merriman said that was lower than expected. H&M as well as many rivals have faced pressure from unusually warm weather in recent months, leaving winter garments on the racks. "Markdowns in relation to sales in the first quarter of 2016 are expected to have a negative effect on the gross margin of 1 to 2 percentage points compared to the same quarter in 2015," it said in its fiscal fourth quarter earnings report. H&M, which has seen margins shrink in 2015 also from currency impacts and large investments in its e-commerce rollout, reported a quarterly pretax profit drop in line with market expectations.

Pretax profit in September through November fell to 7.15 billion crowns (US$ 839.5 million) from a year-earlier 7.80 billion crowns, against a mean forecast in a Reuters poll of analysts of 7.14 billion crowns. H&M, which buys most clothes in Asia in U.S. dollars, said the drop was mainly due the strong dollar effect on purchasing costs and by unseasonably mild weather in November in many large European markets and in North America, which led to weaker sales than planned and increased markdowns.