H&M has recorded a 20 per cent fall in its third quarter profit despite a rise in sales, as summer discounts hurt margins.
Net profit for the three months to August 31 came in at 3.84 billion kronor (£351 million), which H&M said had been affected by large markdowns as the retailer tried to clear inventory.
Pre-tax profit also fell 20 per cent in the same period, down to 5.02 billion kronor (£460 million). Analysts had expected a fall of 21 per cent, according to a Reuters poll.
Meanwhile, sales including VAT across the Swedish company – which also has fascias & Other Stories, Cos, Arket, Weekday, Monki and H&M Home in its network – grew five per cent to 59.38 billion kronor (£5.4 billion).
In the first nine months of its business year, H&M’s group sales including VAT rose seven per cent to 173.3 billion kronor (£15.9 billion).
However, the sales growth is still well below H&M’s new annual target of 10-15 per cent.
“The fashion retail sector is growing and is in a period of extensive and rapid change as a result of ongoing digitalisation,” chief executive Karl-Johan Persson said.
“The competitive landscape is being redrawn, new players are coming in and customers‘ behaviour and expectations are changing, with an ever greater share of sales taking place online.
“This shift is clearly reflected in our online sales, which continue to develop very well. However, our growing online sales did not fully compensate for reduced footfall to stores in several of our established markets, which has resulted in our total sales development not reaching our targets so far this year.
“This is, of course, something that we are not satisfied with and which, among other things, resulted in us entering the third quarter with inventory levels that were too high.”
H&M did not provide separate figures for its fascias, but said there had been “very good development”.
H&M is in the middle of setting up new online stores for the Philippines and Cyprus in the coming months, in addition to the six online markets that have already opened in 2017.
A new online store will also launch in 2018 for the lucrative India market.
The world’s second largest retailer is also planning to open new physical stores in Georgia later this year, as in Uruguay and Ukraine next year.
“In our established markets we are focusing on optimising the store portfolio through renegotiation, rebuilds and relocations, adjustment of store space and through closures,” Persson said.
“Overall we will be closing around 90 stores during the year, resulting in a net addition of approximately 385 new stores.
“We still see good potential for more physical stores primarily in many of our growth markets.”