H&M tumbles over $4bn pile of unsold garments

Bloomberg

Swedish fashion retailer Hennes & Mauritz AB said it’s increasing markdowns this quarter after accumulating a record pile of unsold garments worth more than $4 billion.
Operating profit fell 62 percent to the lowest level in 16 years as inventory rose to 17.6 percent of sales in the first quarter. The stock slumped to the lowest in almost a decade.
“The worrying sign again comes from unabated piling-up of inventory,” said Chris Chaviaras, an analyst at Bloomberg Intelligence.
H&M’s already-downbeat forecast for the start of 2018 was exacerbated by unseasonably warm European weather in January followed by
February’s cold snap, whipsawing the clothing retail industry. That forced the company to slash prices even more to try to clear inventory. Chief Executive Officer Karl-Johan Persson said Tuesday the company made mistakes by narrowing its assortment last year, though he expects sales to improve in the second half.
Persson said H&M plans to reduce markdowns in the second half, when sales should improve. He forecast that the retailer will reduce inventory to 12 percent to 14 percent of sales
in 2019.
“We haven’t improved fast enough,” said the billionaire CEO, 43. “We’re working hard to fix that.”
The retailer is adding a new brand called Afound to sell clothes from
various brands including H&M at a discount, and it’s adding three automated logistics centres this year to speed up deliveries. In February, H&M forecast sales in comparable stores to drop this year before returning to growth in fiscal 2019.
“The next 12-18 months will be challenging,” wrote Alvira Rao, an analyst at Barclays, who said the initiatives may not be enough to keep up with increasing competition.
“Many of our ongoing initiatives are giving good indications and results, even though they have not yet been implemented at a large-enough scale to have a decisive effect,” Persson said.
H&M said it’s maintaining its targets for sales growth of 25 percent from e-commerce and new businesses this year, even though it missed that rate in the first quarter. Online sales rose 20 percent while revenue from new businesses gained 15 percent. H&M also said it began online sales in India and launched H&M on Alibaba Group Holdings Ltd.’s Tmall service in China, and both projects have started well.