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Hennes & Mauritz Q1 profit declines hurt by strong dollar

April 7
8:04 AM 2016

Hennes & Mauritz, a Sweden-based fashion clothing manufacturer, reported its earnings for the first quarter that ended February 29, 2016. The company's quarterly sales including VAT rose by 9% in domestic currencies. After converting into SEK, revenues comprising VAT grew by 8%.

The company earned a profit of SEK 2.5 billion during the first quarter, down from SEK 3.6 billion in the same period in 2015. The decline in quarterly profit was due to the robust US dollar, adversely impacting the company's purchasing expenses. On a per share basis, earnings declined to SEK 1.54 from SEK 2.18 in the previous year quarter.

Profit including financial items amounted to SEK 3.32 billion during the first quarter, down 30% from SEK 4.7 billion in the year-ago period. Quarterly operating profit dropped to SEK 3.27 billion from SEK 4.6 billion in the corresponding period in 2015. However, Hennes & Mauritz's gross profit increased to SEK 22.7 billion from SEK 22.2 billion in the prior year period.

The group's sales before VAT totalled SEK 43.7 billion, up from SEK 40.3 billion in the previous year period. Quarterly sales comprising VAT was SEK 50.6 billion, up by 8% from SEK 46.8 billion in the prior year quarter.

According to MarketWatch, analysts surveyed by FactSet had anticipated a net profit of SEK 2.49 billion for the first quarter of 2016. The fashion clothing designer is intending to expand its e-commerce business in Canada, Greece, South Korea and Japan in late 2016.

The number of new stores was 46 in the first quarter and the company operated 3,970 stores as of February 29, 2016, across 61 markets. The company's selling and management expenses rose by 11% in SEK and in domestic currencies during the first quarter. The rise in expenses was due to the widening of product portfolio and investments in the online market.

Moreover, the company is planning to open its 4000th store in April, in a New Delhi Mall, India. The stores in Germany reported sales comprising VAT of SEK 8.66 billion, down 1% from SEK 8.67 billion in the previous year quarter. However, sales including VAT from stores in the USA increased to SEK 6.4 billion from SEK 5.4 billion in the year-ago period.

According to Microcap Magazine, Zacks Investment Research raised Hennes & Mauritz's SPON ADR EA REP o.2 to a "buy" rating from a "sell" rating and set an objective price of $7.25 on the stock. Jefferies Group also upgraded Hennes & Mauritz's SPON ADR EA REP to a "buy" rating from "hold" rating while Goldman Sachs lifted Hennes & Mauritz's SPON ADR EA REP to a "neutral" rating from "sell" rating. Societe Generale reduced Hennes & Mauritz's SPON ADR EA REP to a "sell" rating from "hold" rating.

The company is aiming to expand its business horizon into e-commerce markets despite weak economy across the globe. Quarterly profits were impacted by higher purchasing expenses that resulted from the strong dollar against local currencies.

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