H&M Analysis

Topics: Revenue, Profit margin, Product differentiation Pages: 15 (4735 words) Published: February 8, 2012

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Executive Summary_________________________________________________

Table of Contents____________________________________________________

Executive summury

Company analysis

1.1 Company Description

1.2 Key Financial Data

1.3 Ethical Position and Recent News

2.1 S.W.O.T Analysis

3.1 Peer Benchmarking

3.2 Porter’s Generic Strategies

4.1 Conclusion

4.2 Recommendation

Appendix: Team Reflection


Additional Appendices

1.1 Company Description___________________________________________

H&M is a leading brand in producing frontline affordable fashion. Founded in 1947 in Sweden, as Hennes and Mauritz (H&M), it has expanded globally and found itself having gained a reputation as a major multinational clothes and cosmetics retailer. The business mainly operates in North America, Asia and Europe, with its headquarters in Stockholm, Sweden. It had over 2,200 outlets around the world and a turnover of SEK 126,966 million in 2010. (H&M, 2011e)

The company was one of the first retailers to challenge the fashion world by delivering fashionable garments at low prices. It produces a range of well-established products for men, women, teens and kids; including everything from modern basics to high fashion collections. The collections are created centrally by around 100 in-house designers together with buyers and pattern makers. 1.2Key Financial Data_____________________________________________

Table 1: H&M revenue, profit after tax and operating profit (2011-2013 estimates) Accounting periods for each year starts at 01-12-YY and ends 30-11-YY

 | 2007/08| 2008/09| 2009/10| 2010/11E| 2011/12E| 2012/13E| Sales excluding VAT, SEK m| 88,532| 101,393| 108,483| 110,826| 123,611| 137,484| Change in sales revenue excluding VAT from previous year, %| 13.00%| 14.53%| 6.99%| 2.16%| 11.54%| 11.22%| Profit after tax, SEK m| 15,294| 16,384| 18,681| |

Operating profit, SEK m| 20,138| 21,644| 24,659| |

Sources: (H&M, 2011a). Estimates: (Thomson ONE, 2011)

Table 2: Hennes & Mauritz – Key ratios and dividends

 | 2007/08| 2008/09| 2009/10| |
Operating profit margin %| 22.7| 21.3| 22.7| |
Return on capital employed %| 61.1| 56.7| 58.7| |
Dividend per share, SEK| 7.75| 8.00| 9.50*| |

Source: (H&M, 2011a), * Proposed by board of directors

For the three last years H&M has shown a steady increase in revenue per annum peaking at 14.54% in the year 2008/2009. Given the global economic downswing and fluctuating exchange rates during those years the result must be seen as good. Although change in revenue fell to 6.99% in 2009/2010 the year was seen as extremely good in terms of sales which yielded an increase by approximately 15%. The expanding in online shopping availability for consumers has had a positive effect on this. (H&M 2011b; H&M 2001c)The company has also managed to maintain a high operating profit margin of around 22% reflecting cost efficient manufacturing and overall cost of goods. Given the large increase in raw material costs for 2009/2010, where cotton prices nearly doubled, this is particularly impressive. (H&M, 2011b) Furthermore, H&M’s return on capital employed floats at around 60%, showing efficient use of its capital resources, giving the firm a lot of “economic muscle” in terms of investing large amounts of profit back into the company for the benefit of shareholders. Not only is this important when considering future growth of the company, but it is also particularly beneficial for shareholders since the reinvested capital is employed against a higher rate of return, which helps produce an increased earnings-per-share growth.

Graph 1 and 2 (G1, G2): European (EU) Confidence, Consumption and Income
G1 - Consumer confidence and private consumption G2 - Households -...
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