H&M shares slip as warehouse investment knocks profits

By Anna Ringstrom

STOCKHOLM (Reuters) - Fashion retailer H&M reported an unexpected fall in quarterly pretax profit on Thursday as it invested in new warehouses to try to capture a bigger share of the fast-growing online market.

Shares in the Swedish company fell 4 percent in early trading after pretax profit for September-November shrank for the sixth straight quarter to 4.4 billion crowns ($482 million).

That was down from 4.9 billion crowns a year earlier and well below analysts' mean forecast in a Reuters poll for an increase to 5.1 billion crowns.

"H&M's investments in its offer are more than the market anticipated and may disappoint those looking for signs of margin normalisation," said RBC Europe analyst Richard Chamberlain.

For 2018 as a whole, profit fell for the third straight year as competition from the likes of Zara, Primark and ASOS and the shift to online shopping hit trading at its core budget stores.

H&M, the world's No. 2 fashion retailer after Zara owner Inditex, has invested heavily in logistics and digital technology and is reviewing its mix of stores and brands, while also working on a new H&M store concept.

Costs of around 450 million crowns related to upgrades of logistics systems weighed on quarterly profit as the company opened three new fulfilment centres so it can make deliveries faster. It said capital expenditure would fall in 2019.

"It has been a challenging year for H&M group and the industry but after a difficult first half, there are signs the company's transformation efforts are beginning to take effect," CEO Karl-Johan Persson said in a statement.

H&M said improved collections generated better full-price sales and lower markdowns towards the end of 2018, predicting markdowns should be down around 1 percentage point in the first quarter, while inventories should also fall.

The company said it planned to add a net 175 stores in 2019, with almost half of them to be newer fashion brands like COS, Monki and Weekday - part of its drive to mimic the success of Inditex by targeting multiple sub-sections of the market.

In December, H&M posted local-currency sales growth of 6 percent for its fourth quarter, but doubts about the strength of its recovery sent its shares down.

It said on Thursday local-currency sales for Dec. 1-Jan. 28, were up 4 percent from a year earlier.

The company proposed an unchanged dividend of 9.75 crowns per share for 2018. Several analysts had forecast the retailer would lower its annual payout for the first time since its 1974 listing.

"Only time will tell whether an unchanged dividend was the result of misplaced optimism, given mixed signs from current trading," wrote Jefferies analyst James Grzinic.

($1 = 9.0221 Swedish crowns)

(Reporting by Anna Ringstrom; Editing by Emma Thomasson and Mark Potter)