By Dominic Chopping
STOCKHOLM--Hennes & Mauritz AB (HM-B.SK) said Wednesday that this year will be challenging as it continues to build its online presence. Nevertheless, as sales from both the internet and new stores grow, it expects improved results in 2018.
In a statement released in conjunction with its capital markets day in Stockholm, H&M said this year has started on a tough footing, with high opening stock levels from the fourth quarter of 2017 and imbalances in its product range resulting in high markdown costs. This will have a negative effect on earnings at the start of the fiscal year, which began Dec. 1, it said.
But online sales are expected to increase by at least 25% in 2018, while new business sales are also expected to increase by at least 25%. Sales in newly opened stores should add around 4% to group sales in 2018, it added.
"Overall, it is assessed that there are good opportunities for a somewhat better result for the full year compared with the previous year," the company said in a statement.
H&M has trailed competitors in the move to online sales, but its digitization process is now in full swing, with online sales contributing 29 billion Swedish kronor ($3.6 billion), or 12.5%, to group sales last year. That was equivalent to 22% of operating profit, it added.
H&M said online sales should grow by around 20% a year from 2019, reaching SEK75 billion in 2022.
As it continues the shift to online, H&M said it will allocate an increasing share of investments and initiatives to its digital work. In the past financial year these made up 45% of the H&M group's total investments.
But the retailer still sees physical stores as an important driver. It expects to return to comparable positive sales from 2019 onward, with considerably lower price markdowns relative to sales compared with 2017. "Overall, this is expected to lead to good increases in profit," it said.
Write to Dominic Chopping at firstname.lastname@example.org; Twitter: @domchopping @WSJNordics