H&M to Miss Margin Target Despite Strong September Sales — Update

By Dominic Chopping

STOCKHOLM--H&M Hennes & Mauritz will miss a key profitability target this year but said sales momentum picked up through July and August before accelerating further in September.

Sales in September--the first month of the fast-fashion retailer's fourth quarter--are expected to rise 11% in local currencies on the year as its first collections of the fall have been well received by customers with good sales and strong resonance on social media, it said.

Analysts at Deutsche Bank had expected a strong September and forecast a 12% rise in local currency sales, mainly due to a good start to the fall/winter season.

Despite the positive start to its fiscal fourth quarter--which runs to the end of November--Chief Executive Daniel Erver said the company isn't expected to hit its operating margin target this year.

The company's long-held target of reaching a 10% operating margin in fiscal 2024 was set by former Chief Executive Helena Helmersson, who unexpectedly stepped down earlier this year. H&M recently cautioned that the target was becoming harder to achieve as raw materials and currencies were expected to bite more than expected. It confirmed Thursday that the margin will likely come in below 10%.

H&M reported an operating margin of 5.9% in the quarter, versus an expected 8.1% according to LSEG Refinitiv data.

Analysts have questioned the attainability of reaching the target this year as H&M has battled lower consumer purchasing power, rising costs and fierce competition from low-cost, fast-fashion rivals such as Shein and Primark on top of its more traditional rival, Zara.

Zara-owner Inditex earlier this month reported strong sales growth in August and early September as it benefited from a positive reaction to its fall/winter collections while keeping price hikes to a minimum.

H&M's Erver has made growing sales a priority at the Swedish group and has lead an investment drive to bring more manufacturing closer to its major markets to smooth logistics and purchasing, while upgrading stores and boosting digital services.

Currently, H&M still counts Asia as a major sourcing region though and the company is monitoring developments in the Red Sea and the global freight market while trying to minimize the impact on its product availability, freight costs and stock levels. It is also taking action to manage supply-chain disruption, which has seen extended transport times due to the Red Sea situation, with its inventory levels rising 3% in the quarter.

Discounting increased somewhat in the quarter and is expected to rise further while marketing costs will also increase.

The company reported a net profit of 2.32 billion Swedish kronor ($227.8 million) for the third quarter to Aug. 31 compared with 3.33 billion kronor a year earlier as sales fell 3.1% to 59.01 billion kronor. Analysts polled by FactSet had expected net profit of 3.33 billion kronor on sales of 60.5 billion kronor.

H&M said it has decided to buy back shares for 1 billion kronor, with the program starting Sept. 26 and continuing until no later than Nov. 26.

Write to Dominic Chopping at dominic.chopping@wsj.com

(END) Dow Jones Newswires

September 26, 2024 03:32 ET (07:32 GMT)

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