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Discounting and currency hit H&M's profits

H&M has reported a 29.5% drop in profit after tax to SEK 2,545m (£221m) for the three months to February 29, due to an increase in discounting and higher costs caused by the strengthened dollar.

Balmain x H&M

Balmain x H&M

Balmain x H&M

Group sales increased by 8% to SEK 50,624m (£4.4bn) while gross profit edged up 2% to SEK 22,699m (£1.9bn). However, gross margin fell from 55.2% to 52%.

The retailer said profits were hit by “substantially higher purchasing costs due to the strengthened US dollar and by increased markdowns” caused by warm weather.

During the quarter, H&M rolled out its online offer to seven more countries: Croatia, Estonia, Ireland, Latvia, Lithuania, Luxembourg and Slovenia. Later this year the business will launch dedicated sites in Japan, Greece, Canada and South Korea, bringing the brand to a total of 34 online markets by the end of the year.

The H&M group plans to open 425 new stores in the current financial year. Most of the expansion will take place in existing markets, although the business will open in New Zealand, Cyprus and Puerto Rico for the first time this year.

The group’s 4,000th shop will open in April, in the Mall of India in New Delhi.

Karl-Johan Persson, chief executive of H&M, said: “The negative dollar effect continues for purchases made for the second quarter 2016, although the negative effect has begun to gradually decrease due to the start of the annualisation of last year’s strong US dollar exchange rate. Should today’s exchange rates continue, the effect of the US dollar on purchasing costs for the fourth quarter will be neutral or slightly positive compared to the corresponding quarter the previous year.”

He added: “Our new brands - Cos, & Other Stories, Monki, Weekday and Cheap Monday - represent an increasingly important part of the group and we are looking forward to launching more new brands further ahead.”

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