H&M impacted by strong dollar on Q2 results but will push forward

Higher purchasing costs, due to the strong US dollar, dampened second-quarter results at H&M, the world’s second-biggest fashion retailer, and the situation may be even worse for the rest of the year.

H&M sources 80% of its clothes in Asia in contracts denominated in the greenback, while selling most of them in Europe. It said in its announcement on the figures for the second quarter that external factors such as raw material prices, cost inflation, capacity at suppliers, purchasing currencies and transportation costs all created a very negative impact.

Gross margin for its March-May second quarter fell to 59.4% from 60.8% a year ago.

Pre-tax profit rose to 8.44 billion Kroner(US$1.25 billion) from Kr7.64 billion in the second quarter of last year, just short of the average forecast of Kr8.48 billion by analysts.

Unusually cold spring weather in many of H&M’s major European markets also had a negative impact.
The company expects further margin contraction for the remainder of this year.

However, it will continue to push ahead with long-term investments in areas like e-commerce and new store concepts.

These investments will be higher this year than in 2014, but CEO Karl-Johan Persson, said they are considered “necessary in order to build an even stronger H&M”.

The company also remains on track with its overseas store expansion.

Its new store in Macau — occupying 19,000 sqf over two storeys — at The Shoppes at the Venetian Macao opened in June. And come August, the first H&M store in Perth will open in the Australian city’s largest shopping destination — Lakeside Joondalup Shopping Centre.

H&M entered the Australian market last year and the Perth store will be its fifth in that country.