H & M Hennes & Mauritz AB Six-month report

First half-year (1 December 2017 – 31 May 2018)

• The H&M group’s sales including VAT amounted to SEK 114,017 m (113,907) during the first half-year. Sales excluding VAT amounted to SEK 98,165 m (98,368). In local currencies, sales including VAT were unchanged.
• Profit after financial items amounted to SEK 7,275 m (10,920). The group’s profit after tax amounted to SEK 6,010 m (8,354), corresponding to SEK 3.63 (5.05) per share.

Second quarter (1 March 2018 — 31 May 2018)

• The group’s sales including VAT increased by 2 percent to SEK 60,463 m (59,538) during the second quarter. Sales excluding VAT amounted to SEK 51,984 m (51,383).
  In local currencies, sales including VAT were unchanged.
• Gross profit amounted to SEK 29,164 m (29,345). This corresponds to a gross margin of 56.1 percent (57.1)
• Profit after financial items amounted to SEK 6,012 m (7,708). The group’s profit after tax amounted to SEK 4,638 m (5,897), corresponding to SEK 2.80 (3.56) per share.
• The H&M group is going through a period of transformation to make the company even more customer-driven, efficient and flexible. This includes necessary transitions to new logistics systems that will allow even better availability, speed and transparency. However, sales and profits were temporarily affected by interruptions in connection with such transitions carried out in the second quarter in major markets such as the USA, France, Italy and Belgium.
• AI and advanced data analytics – very good results from ongoing pilot projects, which are now being scaled up.
• The H&M group’s ninth brand, Afound, which offers hundreds of specially selected fashion and lifestyle brands with products at bargain prices, was launched in Sweden in June. Afound has been very successfully received both in store and online.
• H&M Home will broaden its product range in the second half of 2018 to include lamps and furniture.
• For 2019 Bosnia-Herzegovina is planned to become a new H&M store market and Mexico a new H&M online market.
     
  

Comments by Karl-Johan Persson, CEO

“The rapid transformation of the fashion retail sector continues, and we are in a transitional period that is both exciting and challenging. Challenging because it is complex, extensive and the pace of change is fast. Exciting because we can see positive trends and big potential in connection with our improvement work and investments.

As we signalled previously, it was going to be a tough first half-year. We went into the second quarter carrying too much stock and we still had some imbalances in the H&M assortment – something that we are gradually correcting. As part of our transformation work we are transitioning our logistics systems to make our supply chain even faster, more flexible and more efficient. These transitions are complicated and can result in temporary interruptions, as unfortunately occurred during the second quarter in some of our major sales markets. This negatively impacted sales in the USA, France, Italy and Belgium, as well as online sales in the Nordic region.

Yet in a number of markets sales developed positively; in Sweden, Norway, Denmark and Eastern Europe we grew considerably faster than the market. This shows that we are on the right track and that our digital investments and improvement work are starting to have results. Overall, however, total sales for the quarter were not satisfactory, which meant that inventory levels were still too high at the end of the period.

Work on our priority action areas continues at full speed
An important focus area is to develop the core of our brands. Our highest priority is the H&M brand, where we are continuing our improvement work on the assortment and the customer experience in store and online – while at the same time continuing to integrate the two channels. The utmost important thing is to improve the assortment and we are already seeing positive results from our summer collections, which have sold better than the corresponding collections last year.

We are continuing our investments in the supply chain, tech, advanced analytics and AI. There are promising indications from our pilot projects within personalisation, quantification, allocation and price setting, as well as in trend forecasting. Following on from these positive results, we are now scaling the projects up for more markets and more concepts.

Development of the store portfolio, new online partner and new brand
The development and optimisation of the store portfolio continues. This applies to the number of stores, store area, rebuilds and relocations in order to ensure that we always have the right store portfolio and best terms in each market.

In 2018 we plan to open around 390 stores and to close 150, resulting in a net addition of 240 new stores for the year. Most of the H&M store openings will be in emerging markets, while the closures will take place in established markets. Stores for our newer brands will open in our established markets. We still see great potential for new stores in the coming years as our newer brands gradually come to make up an ever greater share of the store portfolio.

In parallel with the development of our own online store, sales of H&M on Tmall have got off to a very good start with tens of millions of visitors in the first couple of months, contributing to increasing sales in China.

Two weeks ago we launched our latest brand, Afound, an innovative market place in Sweden with hundreds of specially selected fashion and lifestyle brands offering products at bargain prices. Afound has been very successfully received both in store and online.

Outlook
We can see that things are moving in the right direction, even though many challenges remain and there is a lot of hard work still to do. The first half of the year has been somewhat more challenging than we initially thought, but we believe that there is a gradual improvement and that we will see a stronger second half. We have a long-term approach and are optimistic about the future for the whole of the H&M group, with good growth in both sales and profitability for many years to come.”
    

       
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 28 June 2018. This interim 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 4,800 stores in 69 markets including franchise markets. In 2017, sales including VAT were SEK 232 billion. The number of employees amounts to more than 171,000. For further information, visit about.hm.com.

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