H&M shares tumble 9% even as fashion sales grow

H&M reported sales growth in the three months to November but doubts about the strength of recovery at the world’s second-biggest fashion group sent its shares down.

The Swedish group said local-currency sales in the September-November period rose 6% from a year earlier. It followed a pick up in sales in the June to August quarter.

However, H&M, whose rivals include market leader and Zara-owner Inditex, is still heading for a third year of falling profits due to slowing footfall at its core brand’s stores, which are struggling against mounting street sales and online competition. H&M’s shares plunged over 9% at one stage, with the sector overall weighed down by a profit warning from British online fashion group Asos.

“It is not completely clear given the softness of the prior year comparative whether or not H&M is experiencing a product-led recovery thanks to new management within the H&M concept,” Societe Generale analyst Anne Critchlow said.

H&M, whose sales unexpectedly shrank a year ago, said net sales in the three-month period were up 12% to 56.4bn crowns (€5.4bn). It did not give details.

Two analysts estimated sales growth in stores open a year or more amounted to 3%. After sales in the June-August quarter beat expectations, the company had said that new collections were well received and markdowns would probably not increase in the fourth quarter of its financial year.

H&M has in previous years had to mark down prices as inventories climbed due to slowing sales and the inability of the firm’s supply chain to react fast enough to demand swings.

Analysts at Jefferies said there was still a “lack of compelling evidence that the recovery journey is now truly underway”, saying a full assessment of progress would have to await the end-of-year figures.

H&M’s shares have strengthened in recent months on hopes of a break in the trend after they lost two-thirds of their value since 2015. However, the latest drop marked a setback.

Inditex, which for years outperformed the sector, has seen sales growth slow. H&M had gained 27% in the three-month run-up before the results as sentiment toward the embattled retailer shifted. The shares have been buoyed by share purchases by chairman Stefan Persson and Ikea’s investment company Interogo Holding. Its profit and sales for the nine months to October lagged forecasts, which it blamed on the weather and currency swings. Local-currency growth was 7%.

Reuters. Additional reporting Bloomberg

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