H&M misses analysts’ estimates and posts stagnant growth in Q2

Hennes & Mauritz AB missed analysts’ estimates on Wednesday as the Swedish fashion retailer posted its weakest sales growth in three years. Unseasonably wet and wintry weather during the Spring quarter was to be blamed.

Pre-tax profit fell to 7 billion Swedish krona (846 million dollars) in the second quarter, Stockholm-based H&M said in a statement Wednesday. The sum came short of the 7.23 billion Swedish krona expected by the market.

In this vein, the retailer warned the dollar’s strength will continue to increase purchasing costs in the third quarter. It was precisely the US currency’s strength that led H&M to resource to markdowns which ended up narrowing the second-quarter operating profit margin to 14.8 percent, from 18.2 percent in the same period last year.

However, the retailer said the dollar’s effect may be neutral in the fourth quarter.

Unseasonably bad weather costs H&M its worst sales growth in three years

As it stands, H&M had its worst sales growth for three years, with second quarter net profit down 17 percent versus last year. “It has been a challenging half-year for fashion retail in many markets,” Chief Executive Officer Karl-Johan Persson said in the statement.

Sub-par sales have caused inventory to build, reaching 13.7 percent of sales, compared with 11.8 percent a year earlier, added the company.

Snowfall in Germany -- H&M’s largest market -- hurt sales in April, according to the company. In the meantime the Swedish fashion group blamed the early timing of Easter this year for lacklustre growth in March. May sales rose 11 percent excluding calendar effects.

"The fact that the sales increase in the quarter was below plan, naturally also had an impact on profits," Persson said. Profits in the second quarter were also affected by a continued negative effect of the U.S. dollar and the costs of its long-term investments, he added.

Sales increased 7 percent in local currencies in the first three weeks of June, reported Bloomberg, adding that revenue increased 14 percent on that basis in the full month last year.

Image:H&M Magazine - June Issue