H&M Forecasts Physical Stores to Return to Growth Next Year

STOCKHOLM, Sweden — Hennes & Mauritz AB forecast that sales at its brick-and-mortar stores will return to growth next year as it battles a slowdown and tries to improve its online strategy.

Sales in comparable stores will continue to fall this year despite gradual improvement, the Swedish apparel retailer said Wednesday in a statement. Online sales should rise at least 25 percent this year.

The retailer is holding its first capital markets day in Stockholm, responding to criticism that it needs to be more transparent with investors. For the first time, H&M is breaking out e-commerce from physical store sales and profit. Investors have said the company has been too slow to adapt to the industry’s digital shift.

H&M shares have fallen about 42 percent in the last 12 months, compared with a 17 percent drop in its biggest rival, Zara-owner Inditex SA.

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 has an advantage in following the whims of fashion as it's able to move the latest designs to the rack within two weeks.

H&M has reported a record sales decline in the fourth quarter and a 14 percent drop in full-year operating profit. Management is reacting with its largest store-closure program in at least two decades and the creation of a 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.

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. The maneuver proved too difficult to implement.

Still, some investors say the changes aren’t happening fast enough and that H&M is trapped in a vicious cycle of growing inventories and sales markdowns.

By Anna Molin; editors: Christopher Kingdon, Thomas Mulier and Eric Pfanner.