Dollar hurts H&M profits, but not its expansion plans

One of the world's biggest fashion retailers says the strong U.S. dollar hurt profits in the second quarter, but the company is moving ahead with plans to increase investments and even launch a new brand in 2017.

H&M said its gross margin shrank more than expected in the March-May quarter to 59.4% from 60.8% a year ago, which missed analysts' forecasts. The company,which buys most of its clothes in Asia with dollars, blamed the strong dollar and said costs could continue to increase depending on exchange rates.

Karl-Johan Persson, CEO of H&M, said: “Looking specifically at the second quarter, i.e. March to May, sales development was again strong - particularly if we consider the more challenging conditions we faced such as strong comparables from last year, unusually cold spring weather in many of our important European markets and negative calendar effects. Profits have also developed well in the first half-year, with an increase of 19 percent - this despite the fact that the increasingly strong US dollar has resulted in increased purchasing costs and that we have continued to increase our long-term investments compared to last year."

Persson also told Bloomberg that the retailer is developing a new brand "completely different" from anything they've produced before.

H&M said it plans a net addition of around 400 new stores in 2015-16. H&M will expand its retail stores into five new markets in 2015, Taiwan, Peru, Macau, South Africa and India. Starting this July, H&M Beauty will gradually be launched in 900 H&M stores in 40 markets as well as online.

"Our goal is to offer a customer experience in which online and stores are closely interwoven, which will strengthen our customer offering further. In March and April we also opened eight new H&M online markets – Poland, Portugal, Romania, the Czech Republic, Bulgaria, Slovakia, Hungary and Belgium – which were all very well received. With the opening of H&M shop online in Switzerland in the autumn, H&M will have 22 online markets. In parallel with our online expansion, we are continuing to open stores at a fast pace."

The H&M group has more than 3,600 stores in 59 markets including franchise markets.