Today, the shares in Sweden’s H&M, the second-biggest fashion retailer in the world, plunged after its quarterly local-currency sales growth matched forecasts but failed to alleviate longer-term market concerns over inventory and margins.
In recent years, H&M has seen its profits decrease and inventories bank up as footfall decreased at its core-brand stores amidst a shift online and mounting competition from its rivals, while the company has struggled to react quickly enough to the shifts in demand.
The company is heavily investing in digital technology, logistics, store concepts, and online offering, and is reviewing its mix of brands and stores.
Its local-currency sales increased for a third straight quarter in the period between December and February, improving by 4 percent from a year earlier, in line with the mean forecast in a Reuters poll of analysts.
The main rival of H&M is market leader Inditex. In a statement, it said that its net sales were up by 10 percent to 51.0 billion crowns (4.2 billion pounds), as compared to the expectations for an 8 percent increase.
However, the shares of the company were down by 4.6 percent at 0957 GMT, taking them back to their lowest in a period of two days after they rose over the past week.
Recently, Richard Chamberlain, an RBC analyst, raised his rating on the stock to “sector perform.”
He stated: “We think H&M is making progress on its recovery. However, some expectations were for a stronger performance in February.”
He estimated that there was a “very small” sales rise in stores that are open for at least a year.
H&M is scheduled to publish its full first-quarter earnings report on the 29th of March. It did not comment on the sales figures.
The investments of the company to boost sales have taken their toll on profitability, and several analysts are not convinced that the company is already back on track.
Jefferies analysts have a “hold” rating on the stock. In a note, they said that “H&M’s commercial initiative of incentivising customers to switch to its online offering – given free deliveries and returns – should be inherently growth-accretive, but at the same time heavily margin-dilutive.”
They added: “Given this backdrop, while H&M’s sales trends look more supportive, they need to be weighed against the full earnings picture. We expect Q1 results on March 29 to confirm ongoing, heavy margin declines.”
H&M’s rival Inditex owns various brands such as Zara. It has outperformed its rivals for years, however, investors have begun to fret about the slowing sales growth at the group.
Last January, H&M said that it saw less need to lower its prices to shift unsold clothes in the first quarter as compared to a year earlier.
RBC’s Chamberlain said on the first quarter: “We expect inventories to remain high but for the composition to be improving gradually, with a higher amount of fresh garments in the mix,”
The shares of H&M trade at 19.5 times full-year earnings, against 22.5 times earnings for Inditex.