H&M writes off hopes of 2018 recovery as markdowns mount

Bloomberg

Hennes & Mauritz AB executives, addressing a gathering of investors for the first time since reporting an earnings slump, failed to convince shareholders that the apparel retailer’s turnaround plan is on track.
The Swedish company said it expected sales in comparable brick-and-mortar stores to recover in 2019 but said they’d continue to slide this year. The shares fell as much as 5 percent on Wednesday after H&M said it expects markdowns to remain high as it struggles to clear stockpiles.
“The guidance was good and the spirit positive, but H&M has missed its targets significantly so far,” said Joakim Bornold, savings adviser at Nordnet AB. “So what are today’s beautiful words worth?”
The retailer is holding its first capital markets day in Stockholm, laying out its strategy for adapting to the industry’s digital shift as Inditex SA’s Zara and other rivals leave it behind. Responding to criticism that it’s lacked transparency, H&M broke out the revenue contribution of e-commerce and non-H&M brands.
H&M said it expects online sales to rise at least 25 percent this year. It said sales from e-commerce and non-H&M formats like COS, Weekday and newly launched Arket will nearly triple from last year’s level by 2022, but those labels currently account for less than one-tenth of sales.
The purveyor of fast fashion is being squeezed from all directions. The convenience of online-only retailers such as Zalando and Asos is keeping customers away from H&M’s network of more than 4,000 stores. Meanwhile, ultra-cheap Primark is attracting some of H&M’s core cost-conscious customers, and Zara gets new fashions into stores more quickly.
Management is reacting to a record sales decline in the fourth quarter with its largest store-closure program in at least two decades and the creation of another new format, Afound, to sell marked-down clothing. The company is also refurbishing physical stores while directing investments toward e-commerce and faster supply-chain technology. H&M devoted almost half of its investment spending in 2017 on its digital offering.
Earlier this week, H&M abandoned a proposal to help allow shareholders, including the Persson family, to reinvest in the company rather than receive dividends.