Shares of H&M tumbled as much as 8% on Thursday after the world’s second-largest listed fashion retailer posted a miss on operating profit and abandoned its earnings margin target.
The Swedish clothing retailer reported that operating profit for the group’s fiscal third quarter came in at 3.51 billion Swedish crowns ($345.8 million), which compared to 4.74 billion Swedish crowns a year ago. Analysts surveyed by LSEG had forecast operating profit of 4.93 billion, Reuters reported.
H&M dropped its earnings margin target for 2024 after warning of more challenging conditions earlier in the year.
The move is seen as likely to increase the pressure on CEO Daniel Ervér, who has been in the role for just eight months. On succeeding Helena Helmersson in late January, Ervér pledged “to create unbeatable value for our customers and profitable growth.”
H&M has struggled to boost its profitability in recent months, with cooler weather, higher living costs and a slowdown in post-pandemic spending hampering both high street and luxury retail sales.
The retailer is also facing stiff competition from the likes of Zara owner Inditex and fast-fashion retailer Shein.
“External factors have impacted our sales revenue and purchasing costs more than we expected. At present we estimate that this year’s operating margin will be lower than 10 percent,” H&M’s Ervér said in a written statement.
“We are confident that our plan will contribute to increased sales and profitability,” he added.
Shares of H&M fell on the news, down 4% at around 9:40 a.m. London time. The Stockholm-listed firm was among the worst-performing stocks on the pan-European Stoxx 600 during morning trading.
Analysts at UBS said in a research note that some of the most noteworthy areas of H&M’s results included bumper sales in local currencies, an increase to the cost of the firm’s markdowns and the retailer’s plan to reduce its net store count.
H&M said the cost of markdowns in relation to sales was expected to “increase somewhat” in the fourth quarter.
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