The company points to higher costs because of the stronger dollar and more in-store discounts to explain the profit drop.
"These concepts are strong and only at the beginning of their expansion journey", Chief Executive Karl-Johan Persson said.
Mr. Persson said geopolitical events, such as terror attacks and the U.K.'s vote to leave the European Union, took their toll on sales growth in most of its established markets, including Germany, France, the U.S., the U.K., Italy and China, where the company marked down the price of its goods to entice shoppers to its stores. "Since these markets represent a large share of our sales, this consequently had a great impact on our overall sales development". Gross profit increased from last year, while gross margin dropped to 57 percent from prior year's 57.5 percent.
In the last quarter of fiscal year 2016, H&M sales in Croatia rose 4% on the year to 248 million Swedish crowns. However, for the full year ending November 30, 2016, H&M reported a net income decline of almost 11% from 2015.
Hennes & Mauritz AB provided some much-needed good news for Europe's struggling clothing retail market, reporting profit that topped estimates and setting a new annual growth target. Converted into SEK, sales including Value-Added Tax increased by 8 percent to 61,098 million Swedish krona (6,922 million dollars).
The company, which aimed to open 10% to 15% more physical stores each year, reported Tuesday, Jan. 31, is shifting its focus to increasing its omnichannel sales - including both stores and online sales - by 10% to 15% per year, according to H&M.
H&M now operates more than 4,300 stores in 64 markets around the world.
Analysts tell the WSJ that H&M's new strategy could provide the company with a needed jolt in sales, especially online, where it competes not only with traditional retailers like Gap, but with Amazon.
On the Stockholm Stock Exchange, the group's shares surged almost five percent in early business, vastly outperforming the overall market which was up by 0.8 percent.
The group has announced a new growth target and aims to increase the sales by 10 - 15 percent in local currencies per year with continued high profitability.