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 Swedish fashion retailer Hennes & Mauritz AB said it’s increasing markdowns this quarter after accumulating a record pile of unsold garments worth more than $4 billion. 
 
 Operating profit fell 62 percent to the lowest level in more than a decade as clearance sales failed to reduce quantities of T-shirts and jeans that customers had passed over. The stock slumped to the lowest level since 2005. 
 
 “The worrying sign again comes from unabated piling-up of inventory," said Chris Chaviaras, an analyst at Bloomberg Intelligence. 
 
 H&M’s already-downbeat forecast for the start of 2018 was exacerbated by unseasonably warm European weather in January followed by February’s cold snap, whipsawing the clothing retail industry. That forced the company to slash prices even more. Chief Executive Officer Karl-Johan Persson said Tuesday the company made mistakes by narrowing its assortment last year, though he expects sales to improve in the second half. 
 
 The shares traded 5.4 percent lower at 120.54 kronor as of 12:37 p.m. in Stockholm. 
 
 Persson said H&M plans to reduce markdowns in the second half, when sales should improve and a weaker dollar will reduce garment costs. 
 
 The retailer aims to reduce inventory to 12 percent to 14 percent of sales in 2019. Stock-in-trade rose to almost 18 percent of sales in the first quarter. H&M said most of that is spring garments, though a small portion is older than 12 months. 
 
 Mistakes Made 
 
 Karl-Johan Persson Photographer: Johan Jeppsson/Bloomberg 
 
 “We haven’t improved fast enough,” said the 43-year-old scion of the billionaire Persson family. “We’re working hard to fix that.” 
 
 The retailer is starting a new brand called Afound to sell clothes from various brands including H&M at a discount, and it’s adding three automated logistics centers this year to speed up deliveries. 
 
 Last month, H&M forecast sales in comparable stores to drop this year before returning to growth in fiscal 2019. Persson reiterated H&M’s forecast for some improvement in operating profit this year. Analysts expect a 7 percent drop. 
 
 “The next 12-18 months will be challenging,” wrote Alvira Rao, an analyst at Barclays, who said the initiatives may not be enough to keep up with increasing competition. 
 
 H&M said it’s maintaining its targets for sales growth of at least 25 percent from e-commerce and new businesses this year, even though it missed that rate in the first quarter. Online sales rose 20 percent while revenue from new businesses gained 15 percent. 
 
 H&M might have e-commerce in place in all its markets by 2020, Persson said. This month, the retailer began online sales in India and launched H&M on Alibaba Group Holdings Ltd.’s Tmall service in China. The retailer doesn’t plan any more new brands this year, though could consider doing so in 2019, Persson also said. 
 
 — With assistance by Hanna Hoikkala 

 STOCKHOLM (AP) — Swedish low-cost fashion brand Hennes & Mauritz AB says its first-quarter profit plummeted 44 percent after it was forced to cut prices and make markdowns due to higher than expected garment inventories. 
 
 It said Tuesday that its net profit for the December-February period stood at 1.4 billion kronor ($170 million) against 2.5 billion the previous year. Sales fell too, to 53.6 billion kronor from 54.4 billion. 
 
 CEO Karl-Johan Persson said the start of the year was "tough" and that 2018 would be a transitional year as it was preparing to "take advantage of the opportunities generated by rapid digitalization." 
 
 The Stockholm-based group said inventories had risen by 7 percent in the first quarter to due expansion and weak sales. The markdowns, it added, would continue in the second quarter.
– H&M says it is struggling with shrinking profits and a massive, ever-growing pile of unsold clothes. The fashion retailer, full name Hennes and Mauritz AB, is sitting on a $4.3 billion mountain of unsold inventory that has grown by 7% over the last year as shopping habits change, reports the New York Times, which notes that H&M is so big a business that burning its defective items helps fuel a power plant in its Swedish hometown. The company announced this week that sales were down slightly quarter-on-quarter and there was a massive 62% drop in operating profit in the first quarter, the AP reports. "The worrying sign again comes from unabated piling-up of inventory," says Bloomberg analyst Chris Chaviaras. CEO Karl-Johan Persson says the high inventory levels are due to the opening of 220 stores on top of the existing 4,700 and an expansion of online offerings, though critics blame poor management, the Times notes. Persson admits the start of the year has been "tough," but says the company is prepared to "take advantage of the opportunities generated by rapid digitalization." The company says the online business expansion—and some price-slashing—should help reduce the pile of unsold clothes.