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H&M reports drop in Q1'18 profit, sales while hinting at signs of turnaround

Fashion retailer H&M Hennes & Mauritz AB on March 27 reported a drop in fiscal first-quarter sales and profit due to bad weather and higher markdowns but hinted that its turnaround strategy was showing positive results.

The Swedish company said the March 21 launch of H&M and H&M Home on Alibaba Group Holding Ltd.'s e-commerce marketplace Tmall in China "exceeded our high expectations" and that the mid-March debut of its online store in India "got off to a very good start."

For the three months ended Feb. 28, H&M reported that earnings per share fell to 83 Swedish ?öre from 1.48 kroner in the year-ago period, beating the S&P Capital IQ consensus estimate for normalized EPS of 66 ?öre. Earnings were boosted by a one-off gain of 399 million kroner as a result of U.S. tax reform.

Sales excluding value-added tax declined to 46.18 billion kroner from 46.99 billion kroner due to unusually cold winter weather that sapped demand for spring garments and a high level of clearance sales as it shifted stock left over from the fiscal fourth quarter.

H&M is looking to expand this year, noting that it would enter Uruguay and Ukraine in the second half. It also plans to launch online franchises in Saudi Arabia and the United Arab Emirates in spring/summer 2018, which would give the retailer an e-commerce presence in 47 markets.

Afound, the company's newly developed off-price marketplace offering products from well-known and popular fashion and lifestyle brands, is due to be launched in 2018.

"The rapid transformation of the fashion retail sector continues," CEO Karl-Johan Persson said in a statement. "Many of our ongoing initiatives are giving good indications and results, even though they have not yet been implemented at a large enough scale to have a decisive effect on the overall results."

As of March 26, US$1 was equivalent to 8.20 Swedish kroner.