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STOCKHOLM, Sweden — Hennes & Mauritz AB warned that the rising dollar will have a "very negative" effect on garment costs in the second half after the greenback drove second-quarter profitability to the lowest level in nine years.
Gross margin narrowed to 59.4 percent in the three months through May, Stockholm-based H&M said Thursday, missing the 59.8 percent estimate of analysts polled by Bloomberg. The shares fell the most in more than a month in early Stockholm trading, and were down 2.2 percent to 332.50 kronor at 9:03 a.m.
The vendor of $9.95 beach dresses and $12.95 espadrille sandals said that its purchasing costs will be “substantially increased” because of the dollar in the second half, as Asian garment costs are often linked to the dollar. That trend has hurt other apparel retailers like Associated British Foods Plc’s Primark chain. The currency has strengthened 7.9 percent against the euro and 5.5 percent against the krona this year.
“With high U.S. dollar sourcing exposure, and relatively short hedging, H&M have felt the headwind of U.S. dollar appreciation earlier than most,” said Simon Bowler, an analyst at Exane BNP Paribas. “This is likely to persist.”
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The retailer also said it will introduce a line of makeup, body-care and hair products called H&M Beauty in 900 stores in 40 markets, starting next month. H&M also said it plans to increase its store total by about 400 shops this year, and expand into new markets like India and South Africa.
Sales in the first three weeks of June rose 14 percent in local currencies, H&M said. The retailer last week reported that second-quarter sales, excluding value-added tax, increased 21 percent to 45.9 billion kronor. Net income in the second quarter rose 11 percent to 6.45 billion kronor ($783 million), in line with estimates.
Bigger rival Inditex SA reported the fastest quarterly profit growth in more than two years on June 10 as the owner of the Zara chain opened more stores and benefited from the weak euro.
By Katarina Gustafsson and Thomas Mulier, with assistance from Niklas Magnusson. Editors: Matthew Boyle, Tom Lavell.
