The Prospect Of Sharp Decline In H&M Store Profitability Is Not Optimistic.

In the past 8 years, the profitability of H&M stores has been reduced by half, and the enthusiasm of H&M in the minds of consumers has declined.

The world's second largest clothing retailer Hennes & Mauritz AB (

Hayne and Maurice group wind and rain, in March 15th released the weak sales data in February, the 17 day Morgan Stanley (NYSE:MS) Morgan Stanley issued a report, the Swedish fast fashion giant empty, think its relying on new store growth strategy is not sustainable.

In the investment report, the company pointed out that since 2006, the H&M group has added 15% new stores annually, which has a positive effect on the sales of the group, but correspondingly, the profit per unit area has declined every year since 2007.

In view of the increasing number of new stores, profits can not increase or fall.

In the report, it lowered sharply the target price of Hennes & Mauritz AB (HM-B.ST) Hayne Maurice group, which was reduced from 240 kronor to 180 kronor, with a reduction of 25%, while the rating was still reduced.

According to Thomson Reuters data, the average target price of the Hennes & Mauritz AB (HM-B.ST) Hayne Maurice group is still up to SEK 299.4, and the average rating is held by 34 investment banks.

According to the data, in February, the income of Hennes & Mauritz AB Hayne and Maurice Group recorded an increase of 10%, which was far away from the old rival world largest apparel retailer Inditex SA (ITX.MC) Indo textile group. The net sales growth of Inditex SA Indy group from February 1st to March 7th reached 15%, and the results of the leap day and exchange rate floating were removed, while the growth rate of Hennes Mauritz AB 10%, including the beneficial effects of exchange rate and leap day, was still lower than the 11% expected by the market.

In the past year, Hennes & Mauritz AB Hayne & Maurice group has been running the Inditex SA India Textile Group.

According to the no fashion Chinese network data, as of the 2015 fiscal year of January 31, 2016, Inditex SA Indo Textile Group opened a year or more stores sales (net sales 78%) recorded a 8.5% increase, compared with the 5% in the 2014 fiscal year, with a net sales of 20 billion 900 million euros, a 15.4% increase over 18 billion 117 million euros in the 2014 fiscal year. As of the November 30, 2015 fiscal year of 2015, the net sales of Hennes & Mauritz AB Hayne Maurice group rose to 180 billion 860 million Swedish krona, which rose more than that of the Swedish fiscal year.

Due to the different cycle of the financial year, the real income growth of Hennes & Mauritz AB Hayne Maurice group and Inditex SA Indo Textile Group in 2015 is similar, but it is easy to find profits comparing with the profits of the Inditex SA group.

By the 2015 fiscal year ended November 30, 2015, the Hennes & Mauritz AB Hayne Maurice group had a pre tax profit of SEK 27 billion 242 million, an increase of 5.2% over the 25 billion 895 million Krona in fiscal 2014 and a 4.6% increase in net profit to 20 billion 898 million krona.

The gross profit margin narrowed from 58.8% to 57%. In the 9-11 quarter of 2015, the group saw a decline in profits even in the fourth quarter of fiscal 9-11. As of the 2015 fiscal year of January 31, 2016, the Inditex SA Indo Textile Group achieved 15% net profit up to 2 billion 875 million euros, the highest growth rate in the past three years, and the core profit EBTIDA (the profit before interest tax depreciation and amortization) 4 billion 699 million euros increased by 4 billion 103 million over the 2014 fiscal year 4 billion 103 million euro.

Through the analysis of sales and profit data of Hennes & Mauritz AB Hayne Maurice group and Inditex SA Indo Textile Group, it is not difficult to conclude that the two rely on rapid expansion to maintain sales growth, but in terms of profitability, Inditex SA Indo Textile Group is far more than Hennes & Mauritz AB Hayne Maurice group.

Why are there such strong contrasts?

As we all know, the brand mix development of Inditex SA Indo Textile Group is far more balanced than the Hennes & Mauritz AB Hayne Maurice group, and the Inditex SA Indo Textile Group has four Euro 1 billion brand names, including Stradivarius, Bershka, Pull & amp; Pull and Zara, and three of them maintain double-digit stable growth. In addition, because of multiple brand positioning and gender supplement, the gross profit margin of the group can remain relatively stable under market fluctuations.

The Hennes & Mauritz AB Hayne and Maurice group mainly rely on H&M brand, so once H&M loses something, it will damage the whole group.

In fact, H&M has been experiencing pressure on gross margins in recent years, and its user experience has not been as good as Zara, resulting in its average selling price below Zara.

Below.

In its report last week, the company pointed out that in spite of the current trend, although H&M still expands at the rate of more than 400 stores a year, its operating profit will shrink by 40% by 2020.

The bank points out that the Hennes & Mauritz AB Hayne Maurice group is at the critical point of development, that is, profits will be on the edge of high-speed decline. Because of the trend of the Swedish group, the group will maintain its growth in stores and sales and profits will decline. Since 2007, the operating profit of H&M per square meter has dropped from 10900 kronor to 5200 kronor, or more than 50%.

In the report, the company also quoted data from Dixons, a British retailer, as an argument that Dixons started its profit plunge by 70% from the declining profitability of the unit area. It was finally reorganized in 2014 and merged with Carphone Warehouse.

However, despite the future bearding of the Hennes & Mauritz AB Hayne Maurice group, the bank said it is still hard to predict when the Swedish group's share price began to plummet.

According to data, Hennes & Mauritz AB (HM-B.ST) Hayne Maurice group has lost 23% of its share price in the past year, which is higher than that of the OMX Stockholm 30 OMX30 index in the past year, which is about 21%.

And Inditex SA (ITX.MC).

The stock price was basically flat in the past year, significantly ahead of the IBEX 35 and the Spanish market index 22% plunged.