H&M fashion woes weight in: null sales growth add to ever losing ground to Inditex

The world’s second largest apparel retailer is not in celebratory mood. Hennes & Mauritz (HMb.ST) reported no sales growth for the last six months, what nothing but adds to the Swedish fashion group’s losing ground to direct competitor Inditex.

Hennes and Mauritz’s sales were unchanged in the second quarter, marking a six-month period for the retailer to register no sales growth. Sales were unchanged in local currencies, including value-added tax in the three months through May, the Stockholm-based company said in a statement Friday. Revenue excluding tax rose 1.2 percent to 51.9 billion kronor (5.3 billion euro), falling short from the average analyst estimate.

H&M’s increased markdown strategy raises concerns in the market

In an attempt to recover from recent struggles, H&M has aggressively incremented its price discount strategy to reduce a record level of inventory. It’s worth recalling that the apparel group reported a record level of inventory exceeding 4 billion dollars at the end of the first quarter despite increasing markdowns.

"We think (this) will raise concerns about additional markdowns and operating deleverage heading into the HY results on June 28. We remain cautious on H&M," said RBC analyst Richard Chamberlain, who has an "underperform" rating on the shares. "H&M has now posted around three years of negative LFL (like-for-like) sales yoy (year on year). For Q2 we estimate LFL sales were down 4 percent to 5 percent yoy," he added.

On a more positive tone, Macquarie analyst Andreas Inderst, who has a neutral rating on H&M’s shares, said weak comparable sales and large markdowns would hit H&M’s profit in the second quarter. “We expect a key progress report on its excess stock and an update on its action plan to revive sales with the full set of Q2 results,” he said in a note to market echoed by Reuters. “We highlight the ongoing sharp performance divergence versus Inditex, which delivered 4-5 percent like for like growth in the quarter to end April versus the 5 percent decline at H&M.”

H&M has struggled to keep up with its competitors after fashion and delivery mistakes contributed to a rapidly increasing customer leakage. But H&M is not alone, as direct competitor and Zara’s owner group Inditex reported earlier this week weaker-than-expected sales in its first quarter.

Market speculations on H&M’s Chairman taking the company private are “baseless”

On a related note, H&M’s shares fell 2.7 per cent Thursday after Swedish news website Breakit reported that Chairman Stefan Persson said that speculation that he’s planning to take the fashion retailer private are “baseless”.

Back in May, Hennes & Mauritz AB Chairman Stefan Persson’s continued share purchases revived speculation he may be trying to take the global retail giant private. So far in May, Persson had spent about 3.5 billion kronor (401 million dollars) on H&M shares, bringing his stake to roughly 736 million shares. With those purchases, Persson and his family now control 44.5 percent of H&M, or 49.9 percent when combining his stake with the that of his sister, Lottie Tham and her family. Together, they held about 75 percent of H&M’s voting rights at the end of April, highlights Bloomberg. To his date both the chairman and his son, Chief Executive Officer Karl-Johan Persson, have consistently rejected that theory. Nils Vinge, H&M’s head of investor relations, says he’s not aware of any buyout plan.

The stock was down 3.8 percent in midday trading Friday, having lost nearly two-thirds of its value since 2015, and supporting investors’ lack of trust in the company having a viable plan to keep up with the rapid digital transformation of the retail industry. H&M has guided investors to expect lower comparable-store sales in 2018 than in 2017.

Photo:H&M Summer Collection, H&M Official Web