Daily Management Review

H&M Falls Due To Concerns About Its Profitability Target And A Decline In June Sales


H&M Falls Due To Concerns About Its Profitability Target And A Decline In June Sales
After missing quarterly profits estimates and projecting a decline in June sales, H&M raised doubts about its full-year profit margin objective on Thursday. This caused shares of the second-largest apparel retailer in the world to drop as much as 15%.
According to the Swedish corporation, bad weather in numerous regions is a contributing factor in the expected 6% local currency decline in sales this month compared to the same period last year.
CEO Daniel Erver stated that while H&M remained committed to its 2024 operating margin target of 10%, it was becoming more challenging to meet.
"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 stated.
In order to meet the margin target—which it hopes to attain by providing greater discounts—the group stated that it would need to see higher sales growth in the two remaining quarters.
Erver told reporters and analysts that H&M gave away less discounts in June, which was a bad move for the month but a portent of things to come.
While China-founded fast-fashion business Shein is swiftly expanding in Europe and planning a London stock market offering, H&M has frequently lagged behind Inditex, the company that owns Zara.
The Swedish company is forced to choose between Shein's ridiculously low costs and Inditex's upscale clothing line marketed to a more affluent clientele.
It is now unable to raise prices since its main customer base of frugal consumers is unwilling to spend money as inflation eats away at their purchasing power.
Based on Thursday's report, analysts are expected to reduce their full-year projections for H&M's profits per share by 1-2%, according to a note provided to clients by brokerage DNB Markets.
At 12:10 GMT, H&M's stock had dropped by 15%, putting it on course for its worst one-day decline since 2001 and the worst result in the pan-European STOXX 600 index.
The stock has increased by 9% over the past year, far less than Inditex's 35% gain.
In a Reuters interview, Erver stated that he anticipated the weather improving in the third quarter, which would make up for a weak June.
He also mentioned how wonderfully the spring and summer collections had been appreciated.
"We nailed the sweet spot on combining ... different components, and we see the customer response has been tremendous. We are more confident about the rest of the quarter than what we have seen in the first month," Erver said.
The second quarter of H&M's fiscal year saw a 3% local currency increase in net sales compared to the same period last year.
Operating profit increased to 7.1 billion Swedish crowns ($672.5 million) from 4.74 billion the previous year, but it was still less than the average expert prediction of 7.37 billion in an LSEG survey.