H&M's Store Closure Plan Raises Doubts on Sales Revival


31-01-2018 05:38 AM

Ammon News - AMMONNEWS - Investors gave a thumbs-down to Hennes & Mauritz AB’s turnaround plan, which includes the biggest store-closure program in at least a decade and the creation of a new format to supplement the Swedish clothing company’s stumbling main chain.

The company plans to shut 170 stores this year, even as it adds a new format called Afound to sell marked-down merchandise. The retailer said it would invest more in online sales and digital inventory-tracking technology, while adding stores in markets that are still growing.

The shares fell as much as 9.1 percent to a nine-year low Wednesday in Stockholm. They have lost more than a quarter of their value in the past three months. The slump brings H&M’s market value to 235 billion kronor ($29.9 billion), equivalent to about a quarter of what Zara owner Inditex SA is worth.

“There is little in the statement to suggest that H&M can reignite its top line anytime soon,” wrote Richard Chamberlain, an analyst at RBC Capital Markets.

The world’s No. 2 fashion chain by sales has recently hit a number of roadblocks, reporting the biggest in quarterly sales on record. As online shopping has soared, fewer people are visiting H&M’s vast network of physical stores. The company has struggled to cut inventory, which ended the year higher than planned, and H&M said it will increase markdowns by as much as 2 percent in the first quarter to clear that out.

‘Very Poor’
H&M ended the year with net debt for the first time in more than two decades, according to Geoff Ruddell, an analyst at Morgan Stanley, who called H&M’s full-year results “very poor.”

Operating profit fell 14 percent to 20.6 billion kronor in the 12 months through November, the biggest in six years.

The sales woes have forced Chief Executive Officer Karl-Johan Persson to retract a target of 10 percent to 15 percent annual sales growth for this year after setting that long-term target 12 months ago. The goal still stands for the future.

Some investors have sold shares amid fears the company is being too slow in responding to the industry’s digital shift. Didner & Gerge Fonder AB, one of H&M’s top shareholders, has called for a management shakeup. At a news conference Wednesday, Persson said he believes he has the board’s confidence as CEO and declined to comment further on calls for new management.

The company plans 390 new stores. About a quarter of the new shops will be formats other than the flagship H&M, such as COS, Monki and Afound. The latter, the company’s ninth format overall, will consist of stores and websites that offer deals on the company’s own goods as well as merchandise from third parties.

The first Afound store will be in Stockholm, and the site will go online in Stockholm this year. H&M is building a format where it can funnel off excess inventory and is entering part of the market that discount retailers such as Primark and supermarkets have proven can be successful. Afound is a shift in strategy following the last new format, Arket, which sells higher-priced general merchandise, including houseware, purses and coffee.

Still, there’s a risk the new chain may cannibalize H&M’s existing business, according to Michelle Wilson, an analyst at Berenberg.

The Stockholm-based company’s image was also tarnished by accusations of racism after an advertisement featuring a black child wearing a hoodie with the text “coolest monkey in the jungle” sparked a social-media storm and protests in South Africa earlier this month. H&M has apologized for the ad.

Despite speculation among some analysts that H&M would be forced to cut its dividend for the first time since it was listed in 1974, the company kept its payout for 2017 unchanged at 9.75 kronor a share. The company plans to offer shareholders the option to reinvest in new H&M shares instead of receiving the dividend in cash, which analysts said would dilute the stock. Members of the Persson family, collectively H&M’s biggest shareholders, plan to follow that option.

*Bloomberg




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