H&M (OSTO:HM B), a global fashion designer and retailer, was the largest detractor for the quarter, declining 8%. As we anticipated, higher-than-normal inventory levels in the first quarter led to increased markdowns and lower margins. While H&M has started to see an improvement in a number of markets, including China, its performance in the U.S. and Central/Southern Europe remains weak. However, the company is taking definitive steps to improve results and increase its profitability. Last year, a new management team revised the company’s growth targets to focus more on comparable and profitable growth. Also it recently announced the launch of the Arket brand, a higher priced concept that will offer classic garments for women, men and children, as well as home furnishings. We support this move as the company has been successful with its other lines, including & Other Stories and COS. We believe that H&M’s substantial investments over the past few years will soon bear fruit and that the gross margin headwinds facing the company will also abate. For these reasons, we continue to believe that H&M provides good investment value and that it will reward shareholders in the long term.
From the Oakmark International Fund first-quarter 2017 shareholder letter.
