H&M’s sales growth fails to ease investors concerns about margin pressure

STOCKHOLM: Fashion retailer H&M reported sales grew for a fourth straight quarter, but also hinted it had needed to invest more to boost its online business, disappointing investors already concerned about margin pressure.

H&M, the world’s second-biggest fashion retailer, has seen profits shrink and inventories rise in recent years as its core brand has not kept up with the online shift and tougher competition, and not reacted fast enough to demand swings.

While investing heavily in logistics, digital technology and store concepts, and reviewing its mix of stores and brands, H&M keeps struggling to convince investors it is back on track and its shares remain little above the 13-year lows seen in 2018.

The group, whose main rival is market leader Inditex , said yesterday that local-currency sales grew 6% in its fiscal second quarter, March-May, from a year earlier, matching expectations in a Reuters poll of analysts.

“The rapid changes in the fashion industry continue and we can see that our own transformation work is taking us in the right direction, although hard work and many challenges still remain,” it said.

“As customer satisfaction and sales increase, we have intensified our transformation work even further,” it said.

Shares in H&M were down 1.8%, partly because investors took its comments to mean it had had to spend more to transform its business.

Analysts at Bernstein, with a “hold” rating on H&M’s stock, said the figure suggested an improved product offering was starting to gain traction, but added:

“Despite this we assume full earnings later in June will detail marked gross margin attrition – forex sourcing pain, reduced markdowns recovery – with opex inflation remaining elevated and leading to more operating profit margin pain.”

H&M will publish its full second-quarter earnings report on June 27.

RBC analyst Richard Chamberlain, with a “sector perform” rating on shares, said H&M probably gained share in key markets, outperforming among others Gap which has suffered in a challenging US market.

However, he said inventories probably remained high at the end of the quarter, and cautioned that sales comparisons become more challenging in the third quarter.

Loyalty scheme roll-outs and other investments, as well as costs for store closures had probably squeezed margins in the second quarter, he said. — Reuters

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