H&M needs to regain investors trust after Q2 results fuel concerns on margin pressure

New York - The world’s second largest fashion retailer saw sales rise for the fourth consecutive quarter. However, Hennes & Mauritz AB revenue growth slowed down in April and May despite the Swedish clothing group’s attempts to reduce a buildup of inventory that’s been weighing on earnings and unsettling investors.

Hennes & Mauritz Group said Monday local-currency sales over the March-May period rose by 6 percent. And even if sales in the latest quarter were above analysts’ estimates as compiled by Bloomberg News, the figures suggest growth slowed to 5.5 percent in April and May from a 7 percent rate in March, wrote Kepler Cheuvreux’s analyst Fredrik Ivarsson in a note to market.

This watered financial release comes as the Swedish retailer has seen profits shrink in recent years as it has struggled to keep up with the online shift and tougher competition.

Indeed, figures disclosed Monday imply that revenue slowed down in April and May, with analysts quoted by Bloomberg estimating that inventory kept increasing in the second quarter. This news also hinted it had likely have disappointed investors with a week online business, adding to their concerns about margin pressure.

H&M’s investors grow concerned over shrinking margins

H&M has suffered from shrinking profits and rising inventories rise in recent years as its core brand has not kept up with the online shift and tougher competition, and not reacted fast enough to demand swings, sum up market experts quoted by Reuters.

Market sources consulted by FashionUnited point out at the apparent struggles the Swedish fashion group might be experiencing with reinventing its online offering “in a way that confers them a real competitive edge.” And even if H&M’s preliminary second-quarter revenue came ahead of forecasts, the retailer doesn’t seem to manage to convince investors it is back on track and its shares remain little above the 13-year lows seen in 2018.

“The rapid changes in the fashion industry continue and we can see that our own transformation work is taking us in the right direction, although hard work and many challenges still remain,” the company said in a statement issued Monday. It’s worth recalling H&M has been investing heavily in logistics, digital technology, and store concepts, as well as re-assessing its brands' portfolio. “As customer satisfaction and sales increase, we have intensified our transformation work even further,” added the company when presenting the second-quarter results.

Photo: Love Stories X H&M Collection, H&M U.S. Web

 

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