Swedish fashion retailer H&M has posted a decline in its first quarter profit and has warned that it may need to cut prices to clear unsold stock.

H&M posted a 61 per cent drop in profit for the three months to February. Pretax profit fell to 1.26 billion crowns ($154 million). The clothing retailer’s net profit of 1.37 billion crowns was boosted by a one-off positive tax income of 399 million crowns related to US tax reform.

The company had warned recently that markdowns due to weak demand in its main H&M brand stores would hit earnings, and this month said quarterly sales had fallen by two per cent.

Online sales increased by approximately 20 per cent year on year.

“As communicated previously, the start of the year has been tough,” said Karl-Johan Persson, company CEO. “2018 is a transitional year for the H&M group, as we accelerate our transformation so that we can take advantage of the opportunities generated by rapid digitalisation.”

“The weak sales development combined with substantial markdowns had a significant negative impact on results in the first quarter,” Persson said.

But, the retailer had said it expected sales and profits to return to growth.

“Many of our ongoing initiatives are giving good indications and results, even though they have not yet been implemented at a large enough scale to have a decisive effect on the overall results,” Persson added.

This year, H&M announced it is planning to open 220 new stores. Most will be H&M stores, but 90 will be its newer spin-offs including & Other Stories, Cos and Monki.

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