H&M Q1 profits soar 36%, CEO warns of strengthening US dollar headwinds

H&M turned in strong profit results for the first quarter of the year citing an improving store base, online growth and well received collections for driving the business forward.

Post-tax profits were up 36% to SEK3.61 bn( $451.3 m) with the retailer turning in a gross margin of 55.2% up from 54.9% last year.

The pace of current trading has slowed slightly, with sales growth between March 1 and March 21, running at 9%, against the 15% it recorded during the whole quarter ending Feb. 28.

But CEO Karl-Johan Persson said: “”We have made a very good start to 2015 – in terms of both sales and profits.”

“Our attractive customer offering and strong expansion both through stores and online, as well as our work on continuous improvement, are among the reasons for increased market share gains and good profits.”

H&M plans to open about 400 new stores in the 2014-15 financial year.

Analysts expect margins to come under increasing pressure later this year as the impact of a strong US dollar leads to a rising cost base. Shares in H&M dipped 0.4 percent in early trading on the Stockholm stock exchange.

Persson also acknowledged that the dollar’s strength would affect H&M’s sourcing costs going forward with the real effects not being felt until the second half.

He said: ““Although the strong U.S. dollar will affect our sourcing costs going forward, we will make sure that we always have the best customer offering in each individual market.” Some analysts read into this that to remain competitive H&M may decide not to pass on the cost to customers in the form of higher prices.

The retailer said it planned to open new stores in Taiwan, Peru and Macau in the first half of 2015, and in South Africa and India in the second half. It had 3,551 stores world-wide as of Feb. 28, up from 3,192 at the same time last year.

New online markets will come on stream in Portugal, Poland, the Czech Republic, Romania, Slovakia, Hungary, Bulgaria and Belgium in the spring and Switzerland in the autumn.

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