Growing online sales weren’t enough to offset weaker footfall over the third quarter at Swedish fashion retailer Hennes & Mauritz, which reported a steep drop in profits after failing to meet its own sales targets so far this year.

Sales excluding VAT increased 5 per cent year on year in the three months to August 31, to SKr51.2bn (£4.7bn), but post-tax profits tumbled 20 per cent to SKr3.8bn. The profit figure was slightly below consensus estimates.

H&M blamed the lower profits on its “aggressive” summer sales, as the company put big markdowns on products after entering the third quarter with too much inventory. It said the discounts had successfully addressed its inventory problems and encouraged a strong start for its autumn season, but had “a dampening effect on revenue growth”.

The company has been pressured in recent years by the rise of ultra-cheap retailers such as Primark and the growth of online-focused stores such as Zalando. The Swedish group has responded by investing in its online operations and launching new brands – including the more upmarket Arket, which opened this year. H&M said Arket’s London store and online launch had been well-received.

Karl-Johan Persson, H&M chief executive, said:

The fashion retail sector is growing and is in a period of extensive and rapid change as a result of ongoing digitalisation. The competitive landscape is being redrawn, new players are coming in and customers’ behaviour and expectations are changing, with an ever greater share of sales taking place online.

This shift is clearly reflected in our online sales, which continue to develop very well. However, our growing online sales did not fully compensate for reduced footfall to stores in several of our established markets, which has resulted in our total sales development not reaching our targets so far this year. This is of course something that we are not satisfied with and which, among other things, resulted in that we entered the third quarter with inventory levels that were too high.

(Photo: Bloomberg)

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