Hennes & Mauritz AB shares dropped after the Swedish clothing retailer said itâs unlikely to hit a key profit target this year following a washed-out summer in Europe.
Chief executive officer Daniel Erver said that a pick-up in sales since the cold weather in June wonât be enough to help it achieve a 10 percent operating profit margin goal. He also pointed to the continued high cost of living for consumers.
Operating profit for the third quarter came in at 3.51 billion kronor ($350 million), below analyst estimates, even though H&M said it had maintained good cost control during the period.
H&M shares fell as much as 8.6 percent in early trading Thursday in Stockholm, meaning they are now down for the year.
The results come amid a strategy shift for the Stockholm-based company under Erver who took over after Helena Helmersson stepped down abruptly in January. Erverâs plan is to improve the clothing products itâs selling and the look and feel of H&Mâs stores and marketing efforts in a bid to attract cash-conscious shoppers.
H&M will no longer prioritise âthings that donât strengthen our brands or contribute to our sales and profitability,â Erver said in a statement. The H&M veteran, who started as a summer trainee in 2005, needs to improve H&Mâs competitiveness against key rival Inditex SA, whose shares surged earlier this month after it said its third quarter was off to a strong start.
H&M is also facing increasing competition from Chinese upstart Shein and has been recruiting celebrities popular with Gen-Z such as Charli XCX and Lila Moss fronting the fall-winter 2024 collection in a bid to target a demographic itâs struggled to win over.
Younger consumers arenât the only people H&M needs to appeal to. In August, analysts at Citigroup Inc. advised clients to sell shares in the Swedish firm and buy those in Zara-owner Inditex.
Net sales in the quarter were down a touch at 59.01 billion kronor and also slightly below analystsâ expectations. But sales in September are expected to increase by 11 percent in local currencies on a year earlier, H&M said.
H&Mâs surging shares in the run-up to todayâs results reflected optimism about strong sales, as European temperatures clearly turned cold for the autumn-winter season, according to James Grzinic, a retail analyst at Jefferies. However, he added: âWhat is rather more critical today is a 24 percent miss in third quarter earnings before interest and tax.â
âGuidance for negative general merchandise impacts from markdowns and external factors in the fourth quarter, combined with an evident step up in cost investments, will likely lead to considerable consensus downgrades today,â he said.
By Jonas Ekblom
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