Sweden’s H&M cautioned that sales from its existing stores would continue to fall this year even as booming e-commerce should help lift earnings.
After decades of rapid expansion, the world’s second-largest clothes retailer behind Zara-owner Inditex, has seen sales growth stall in recent years as it has struggled to adapt to the shift online and fend off competition from other budget brands.
A secretive company still controlled by the family of Erling Persson who founded the company in 1947, H&M held its first-ever capital markets day yesterday in a bid to reassure investors, stung by a halving of the share price since March 2015.
“We understand the need to be more transparent,” chairman Stefan Persson, the founder’s son, told investors assembled in central Stockholm.
“Especially since we have had a challenging year ... where we have underperformed both against our own plans and of course market expectations,” he said.
The stock fell as much as 5%, increasing its discount to Spain’s Inditex, which was up 1%. H&M forecast growth of at least 25% in online sales and in its new brands such as Cos and H&M Home in 2018, but said sales from existing stores would fall further, noting a tough start due to high stock levels and problems with its ranges. By contrast, Inditex said sales at its more than 7,500 stores and online increased 13% at constant exchange rates between the start of November and December 11.
H&M has invested heavily in online to catch up with the likes of Asos and Zalando. It now offers e-commerce in 43 of its 69 markets, while Inditex is online in 45 of its 94 markets.
However, Inditex has a more flexible supply chain, enabling in-store deliveries and returns of online orders that its Swedish rival has been slower to introduce. Portfolio manager John Hernander at Nordea, a top-ten H&M shareholder, said: “Given the negative surprises in the past quarters, H&M probably needs to show that the trend has changed before the stock comes into a positive trend for real, but the information today signals a more forward-looking H&M.”