H&M launches new upmarket brand as profits slow

Profits drop at Hennes and Mauritz, but a new upmarket brand is on its way

Swedish clothing giant Hennes and Mauritz (H&M) Thursday announced the launch of its eighth fashion brand as tough market conditions in the US and Central Europe hurt profits.

The company reported a 3.4 percent drop in net profit in the December to February period, the first quarter of the company's financial year, due to the combination of a slower than expected rise in revenues and seasonal discounts.

"To meet the rapid change that is going on in fashion retail we need to be even faster and more flexible in our work processes, for example as regards buying and allocation of our assortment," CEO Karl-Johan Persson said in a statement.

H&M posted a net profit of 2.45 billion kronor (256 million euros, $275 million), while turnover was up eight percent to 46.98 billion in the same period.

Sales increased by four percent in local currencies, but the group has a target of 10 to 15 percent per year.

"For fashion retail in general, market conditions were very tough in many of our large markets in central and southern Europe and in the US, and this was reflected in our sales," Persson said.

H&M's share price dropped in response to the announcement, falling by 5.7 percent on the Stockholm stock exchange, vastly underperforming an overall market down just 0.8 percent.

The new brand, ARKET, will be launched in the third quarter, with the first store to open in London followed by Brussels, Copenhagen and Munich and online operations in 18 European markets, the group said.

It will offer clothes for men, women and children and household products, which will be more upscale than H&M, and each store will include a coffee shop inspired by Nordic kitchen and cuisine.

The group also operates Swedish brands such as Cos, & Other Stories, Monki, Weekday and Cheap Monday, whose sales continue to grow both online and in stores.