H & M Hennes & Mauritz AB Full-year report

Full-year (1 December 2015 — 30 November 2016) 

• The H&M group’s sales including VAT increased by 7 percent in local currencies during the financial year. Converted into SEK, sales including VAT increased by 6 percent to SEK 222,865 m (209,921). Sales excluding VAT amounted to SEK 192,267 m (180,861).
• Gross profit increased to SEK 106,177 m (103,167). This corresponds to a gross margin of 55.2 percent (57.0).
• Profit after financial items amounted to SEK 24,039 m (27,242). The group’s profit after tax amounted to SEK 18,636 m (20,898), corresponding to SEK 11.26 (12.63) per share. Profits during the year were negatively affected by increased mark-downs but also by higher purchasing costs from the strengthened US dollar.
• Very strong expansion during the year with a total net addition of 427 (413) new stores and 11 new H&M online markets. At the end of the financial year H&M had 35 online markets and the number of stores amounted to 4,351 in 64 markets.
• 13,000 new jobs were created in the H&M group in 2016. The number of employees amounted to more than 161,000 (148,000) at the end of the financial year.
• Continued strong online development for all brands both as regards sales and profitability.
• Strong sales growth for COS, & Other Stories, Monki, Weekday and H&M Home.

Fourth quarter (1 September 2016 — 30 November 2016) 

• The H&M group’s sales including VAT increased by 7 percent in local currencies during the fourth quarter. Converted into SEK, sales including VAT increased by 8 percent to SEK 61,098 m (56,477). Sales excluding VAT amounted to SEK 52,720 m (48,694).
• Gross profit increased to SEK 30,027 m (27,997). This corresponds to a gross margin of 57.0 percent (57.5).
• Profit after financial items increased to SEK 7,409 m (7,148). The group’s profit after tax increased to SEK 5,914 m (5,526), corresponding to SEK 3.57 (3.34) per share.  
• A very good start for H&M’s new markets, Cyprus and New Zealand, as well as for H&M’s latest online roll-outs in Canada and South Korea.
• The Board of Directors proposes a dividend of SEK 9.75 (9.75) per share for the 2015/2016 financial year. The Board of Directors proposes that the dividend is to be paid in two instalments during the year – in May and in November.
• New growth target: to increase the H&M group’s sales by 10 – 15 percent in local currencies per year with continued high profitability.
• The H&M group’s sales including VAT in December 2016 increased by 6 percent in local currencies compared to the same month the previous year. Converted into SEK the increase was 10 percent.
• The H&M group’s sales including VAT in the period 1 January to 29 January 2017 increased by 11 percent in local currencies compared to the same period the previous year. For January as a whole there is a negative calendar effect of approximately 2 percentage points, which occurs at the end of the month.
• The H&M group plans to open approximately 430 new stores net in the 2016/2017 financial year. Kazakhstan, Colombia, Iceland, Vietnam and Georgia are planned to become new H&M markets. In addition, H&M plans to continue its online roll-out into six new markets: Turkey, Taiwan, Hong Kong, Macau, Singapore and Malaysia.
• The H&M group plans to launch one or two new brands in 2017.

Comments by Karl-Johan Persson, CEO
“2016 was an eventful year which included many positive things but also challenges for us as well as for the industry. During the year, we opened 427 new stores net worldwide and added three new markets, and we also rolled out our online store to 11 additional markets. This means that H&M is now present in 64 markets of which 35 offer e-commerce. We welcomed more than 13,000 new colleagues which means there are now more than 161,000 colleagues in the group.

Our sales increased by 7 percent in local currencies to SEK 223 billion - our highest annual turnover to date - although sales performance was lower than planned, which led to increased mark-downs. This, combined with the fact that the strong US dollar made our purchases more expensive, had a negative impact on our profit development for the full year. However, profits improved in the fourth quarter.

The year was characterised by the shift in the industry towards an ever growing online market and by digitalisation. We are very pleased that our online business developed very well for all our brands, both as regards sales and profitability. From an already high level we took further market share, which clearly proves that our investments in our online business have been successful. Our brands COS, & Other Stories, Monki, Weekday and H&M Home had apart from strong online sales growth also very good store sales.

It is also positive that sales developed well for H&M in our well-established markets such as Sweden and the other Scandinavian countries and in Russia, Turkey and Canada, but also in our newer markets such as India, Australia, South Africa, Mexico, Chile and Peru.

For fashion retail in general, 2016 was at the same time a challenging year in which various external factors - including geopolitical events - had a negative impact on retail trade in many markets. This was particularly visible in France, Germany, Switzerland and Italy as well as in the US and in China. Since these markets represent a large share of our sales, this consequently had a great impact on our overall sales development. However, during the year we also identified areas within our customer offering, store experience and supply chain where we could have done better – and where we are now methodically ensuring improvements.

Exciting development phase
We have a highly developed online business model and today our online sales already represent a significant share of our total sales in several markets. We are in an exciting development phase as we continue with the investments that we have been making for the past few years in digitalisation and infrastructure in the following focus areas:

-  Omni-channel strategy: We have a clear omni-channel strategy in which we are integrating the digital and physical world in order to offer customers a more seamless shopping experience. This includes online purchases and online returns in stores, click & collect, mobile payments, further development of the customer club and use of the mobile in stores for increased service.

-  Supply chain: We are upgrading our supply chain to make it even faster and more flexible – which includes investments in technology such as RFID and automatised warehouses. We are also adding new delivery options for customers, such as next day delivery which we now offer in five markets, and we have also started offering time-slot deliveries in Japan.

-  Advanced analytics provide an important support for our operations. The algorithms we have started to use will contribute to improvements within everything from assortment planning and logistics to sales.

The investments in these areas ensure that we are well positioned for continued long-term and profitable growth. This also includes our strong expansion both through new stores and new online markets.

Continued strong expansion – rephrased growth target
In the light of this development, it is natural for us to rephrase our growth target. This means that our previous target of increasing the number of stores by 10 to 15 percent per year will instead become a sales target that includes both stores and online sales. Our new growth target which applies for 2017 and going forward is for the H&M group’s sales to increase by 10 to 15 percent in local currencies per year with continued high profitability.

Today we have a strong store portfolio with more than 4,300 stores which gives us a unique proximity to our customers. Being close to the customers is key to success and even more important as the physical and the digital world become increasingly integrated. The stores that we are opening have very favourable and flexible leases, are in good locations and are profitable with a short payback period. In view of this, it is only natural for us to continue expanding with our physical stores too.

In 2017 we plan to open approximately 430 new stores net. We will enter five new bricks-and-mortar markets – Kazakhstan, Colombia, Iceland, Vietnam and Georgia – and six new H&M online markets – Turkey, Taiwan, Hong Kong, Macau, Singapore and Malaysia.

Alongside opening new stores, we will also review the existing store portfolio to make sure that we have the optimal mix of brands, space and number of stores in each market. This will lead to
re-locations, adding new store space and also closures. Most of the new stores in 2017 will be H&M stores and approximately 70 to 80 stores will consist of our other brands.

H&M Home is developing very well and has great potential for further growth. Going forward we will therefore open standalone H&M Home stores and profile H&M Home even more as a standalone brand.

In 2017 we are looking forward to delivering strong collections and customer experiences and launching one or two new brands. This, combined with the ongoing improvements and our investments in the omni-channel offering, the supply chain and advanced analytics make us positive towards our opportunities for reaching our newly rephrased growth target, both in 2017 and going forward.”
  

Invitation to press and telephone conference in conjunction to the full-year report is available on hm.com.
  
  
Information in this full-year report is that which H & M Hennes & Mauritz AB (publ) is required to disclose under Sweden’s Securities Market Act and the EU Market Abuse Regulation (596/2014/EU). The information was submitted for publication by the abovementioned persons at 8.00 (CET) on 31 January 2017. This full-year report and other information about H&M, is available at www.hm.com

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