H&M was in expansion mode in 2013, opening 356 stores in new and existing markets, and the Swedish fast-fashion chain shows no signs of letting up. The company on Thursday announced plans to open 375 shops in 2014, which is more than one every day.
There are also plans to launch e-commerce in new markets this year — France’s online shop went live just this month and Spain and Italy are next, followed eventually by China. Meanwhile, the company is also expanding retail for offshoot brands & Other Stories and Cos, both of which are coming to the U.S. this year.
And while all of that is great for shoppers, the company’s rampant retail expansion has put a damper on profit growth. Net income rose 7.8 percent, which fell short of analysts’ estimates. Operating profit increased by 9 percent in the first quarter of 2014, but would have increased by 14 percent were it not for the costs associated with this rapid expansion. CEO Karl-Johan Persson pointed specifically to “substantial long-term investment in areas such as IT and online.”
“You don’t get the full scale revenue and profitability in the beginning [when opening a new store or online market],” explained Head of Investor Relations Nils Vinge during a conference call. “Once it’s up and running it’s more normal.” He added that the first quarter is the shortest for H&M, so the French e-commerce launch had a higher impact than it would have otherwise.
Given that the company’s expansion plans this year are even more ambitious than last year’s, which is likely due to its desire to keep up with rapidly growing competitors like Zara and ASOS, it could be a while before we see it reach its full profit potential.