H&M Sinks on Doubts About Margin Target and June Sale Drop

Sales this month are likely to fall 6% in local currencies versus a year earlier, partly due to poor weather in many markets, the Swedish company said. “It’s mainly connected to Europe where the weather has a significant impact on our short term trading,” CEO Daniel Erver told a news conference.

Erver said H&M still stood by its 10% operating margin goal for 2024, but that it had got harder to reach.

“External factors that influence our purchasing costs and sales revenues, including materials and foreign currency, will have a more negative impact than we expected in the second half,” he said.

“The most important prerequisite for achieving our goal is that sales growth is further strengthened in the second half of the year compared with the second quarter increase.”

The group offered fewer product discounts in June, which was a positive sign for the long run but had a negative impact for the month, Erver told reporters.

In the second half of the year, H&M plans to boost sales by offering slightly higher discounts, he added.

Analysts are likely to cut their full-year estimates for H&M’s earnings per share by 1-2% based on Thursday’s update, brokers DNB Markets said in a note to clients.

H&M has often fallen short of Zara owner Inditex, while China-founded fast-fashion group Shein is expanding rapidly in Europe and plans a London stock market listing.

H&M shares fell nearly 14% at market open and were down 13.2% at 0940 GMT, on track for their biggest single-day decline since 2001 and the worst performance in the pan-European STOXX 600 index.

The stock is up 9% in the last 12 months, significantly lagging Inditex’ 35% rise.

JPMorgan said the update was disappointing.

“We …. indeed think that the June sales and margin commentary could weigh on the wider sector,” the broker said.

H&M has struggled to win back customers, with its core of cost-conscious shoppers reluctant to spend as inflation ate into purchasing power.

The Swedish group said net sales in its March-May second quarter rose 3% in local currencies versus a year earlier, with growth in all customer groups and a positive trend in all regions.

Operating profit was 7.1 billion Swedish crowns ($672.5 million), up from 4.74 billion a year earlier but below a mean forecast of 7.37 billion in an LSEG poll of analysts.

By Marie Mannes

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