H&M (STO: HM-B) 1Q18 Results: Cold Weather and Markdowns Hamper Sales and Profit Growth

Executive Summary

• H&M reported a 5.8% decline in gross profit in 1Q18, yielding a 220-basis-point fall in the gross margin to 49.9%. Operating income fell by 62%, representing a contraction of 410 basis points in the margin to 2.6%.
• Diluted EPS was SEK 0.83 for 1Q18, above the SEK 0.66 consensus estimate, but down from SEK 1.48 in 1Q17.
• H&M noted that profit development in the quarter was stemmed by weak sales growth as well as by increased markdowns.
• Management expects sales from new brands and online sales in FY18 to grow by more than 25%. For the full year, the group expects to “achieve a somewhat better result” compared to FY17.