H&M expects sales upturn

Budget fashion firm Hennes & Mauritz (H&M) generated a slightly bigger rise than expected in sales last month, offering some support to company guidance that results in the second half of the year were likely to be stronger than in the first.

Local currency sales at the world’s second-biggest fashion retailer after Zara owner Inditex rose 10% in the month, against a mean forecast for a 9% rise in a Reuters poll of analysts.

H&M’s shares rose 2.7% in early trading, trimming the year-to-date decline to less than 8%, before paring back slightly later in the day but remaining ahead by more than 2%.

July marked the tenth month of slower growth than a year earlier amid tough conditions for global clothing retail, tougher competition in H&M’s budget segment and several months of adverse weather conditions in some of H&M’s key markets.

H&M’s negative sales trend is, however, widely expected to turn around from August as year-ago comparisons get easier. In August 2015 growth was a mere 1%.

Bernstein analyst Jamie Merriman said July sales were probably supported by discounting and estimated like-for-like sales at the fast-expanding firm were unchanged from a year ago.

H&M has seen profits shrink for three consecutive quarters, squeezed not only by the usually big markdowns, but also by large long-term investments in online technology and new brands, and by high purchasing costs in Asia due to a stronger dollar.

Many analysts, however, see a return to profit growth from the fourth quarter helped by better currency translation effects.

H&M chief executive Karl-Johan Persson said in June he saw good conditions for better results in the second half of the year than in the first.

Societe Generale analyst Anne Critchlow, however, warned the extent of the widely expected second-half pick-up would depend partly on weather, as well as overall pricing power.

“The core H&M concept operates in the most price-competitive segment of clothing retail and we remain bearish on its pricing power,” said Ms Critchlow.

Societe Generale currently has a sell stance on H&M’s shares.

“For example, we do not think H&M will be able to pass the costs of free delivery and returns through to its customers, while online is likely to become an increasingly important channel for growth.