STOCKHOLM - H&M (ST: HMb) has thrown a wrench into its full-year profit margin ambitions, revealing on Thursday that it missed quarterly earnings expectations and is anticipating a sales dip in June. This news decreased the shares of the world’s second-largest fashion retailer by nearly 14%.
The retailer predicts a 6% reduction in June sales compared to the same month last year, attributing part of the decline to unfavorable weather conditions in various important markets. CEO Daniel Erver, while reaffirming the company’s belief in achieving a 10% operating margin by 2024, cautioned that reaching this target has become increasingly challenging.
“External factors such as material costs and currency fluctuations are expected to impact our purchasing and sales more negatively in the second half of the year than we previously anticipated,” Erver stated. He highlighted the necessity of bolstering sales growth in the latter half of the year compared to the second quarter.
H&M (ST: HMb) has frequently trailed behind Zara owner Inditex (BME: ITX). Furthermore, the swift expansion of the China-based fast-fashion giant Shein in Europe, which is eyeing a London stock market debut, adds to H&M’s competitive woes. The Stockholm-based retailer saw its shares nosedive nearly 14% at the market open.
JPMorgan described the earnings report as disappointing, foreseeing a negative reaction in the stock market. "We expect the commentary regarding June sales and margins could potentially have a broader impact on the sector," noted the brokerage.
H&M (ST: HMb) has faced difficulties luring back customers, particularly their price-sensitive segment, as inflation continues eroding purchasing power. The Swedish company recorded a 3% rise in net sales for the March-May second quarter in local currencies compared to the previous year. This growth spanned all customer segments and regions. Despite this, the operating profit of 7.1 billion Swedish crowns ($672.5 million) fell short of the 7.37 billion projected by analysts in an LSEG poll. However, it did improve from the previous year’s 4.74 billion crowns.
With external pressures and changing market dynamics, how H&M (ST: improve) navigates the year's second half will be crucial for investors. While the company aims to tighten its grip on profit margins, the road ahead looks unpredictable.
($1 equals 10.5564 Swedish crowns)
