H&M sees growth in online sales lifting earnings this year

By Anna Ringstrom and Helena Soderpalm

STOCKHOLM (Reuters) - Sweden's H&M expects earnings to grow this year as rising online sales offset weakness in its physical stores, it said on Wednesday at its first ever day of investor briefings held to assuage concerns over future strategy.

Shares in the world's second-biggest fashion retailer reacted positively and were up 2.5 percent at 145.22 Swedish crowns by 0727 GMT, compared with a 0.7 percent firmer European retail sector.

The company, a rival globally to Zara-owner Inditex, forecast growth of at least 25 percent in online sales and in its new brands such as COS and H&M Home in 2018, but said sales from its existing stores would continue to fall, noting high stock levels.

H&M has in recent years seen sales growth stall as it struggles to keep up with shoppers moving online, and fend off competition in its core budget segment. Inditex has consistently outperformed its Swedish rival in that time, helped by having a faster and more flexible supply chain and by moving faster into ecommerce.

In a statement ahead of its capital markets day for analysts and investors, H&M said it expected a "somewhat better" result for the 2017/18 financial year.

Analyst John Hernander at Nordea, a top-ten H&M shareholder, said: "The market expects lower earnings for 2018, so if H&M instead delivers on its target of a somewhat higher profit and turns the negative estimate revision trend, the stock will also turn."

ONLINE SALES

Shares in H&M, which is controlled by the Persson family, have slid for three straight years, shedding more than half their value from a record high in March 2015 amid mounting scepticism the company has a viable turnaround plan.

H&M said it expects online sales to reach 75 billion crowns ($9.4 billion) in 2022, up from 29 billion in 2016/17, and new brands to achieve sales of 50 billion in 2022, up from 17 billion in 2016/17.

"Overall, this is expected to lead to good increases in profit," Chief Executive Karl-Johan Persson said.

The group said its online channel accounted for 12.5 percent of total sales in 2016/17, but 22 percent of operating profit.

H&M, which has said it will close some stores in mature markets in regions such as Europe, said it expected newly opened stores to increase sales for the group by between 1 and 3 percent in the 2019 to 2022 period.

It also held out the prospect of additional growth from two "completely new business models" it is working on, without elaborating.

Earlier this week the retailer dropped plans to ask shareholders to reinvest their dividend payout in new H&M shares, saying this would have been too difficult to carry out.

The original proposal, supported by the Persson family, took markets by surprise and played a part in sending the battered stock down to its lowest level since 2008 when announced late last month.

($1 = 8.0056 Swedish crowns)

(Reporting by Anna Ringstrom and Helena Soderpalm; Additional reporting by Johannes Hellstrom; Writing by Niklas Pollard and Emma Thomasson; Editing by David Holmes)