H&M shares slide as discounts to clear stock loom

Hennes & Mauritz (H&M) said second-quarter price cuts to clear inventory may exceed last year’s, sending the shares tumbling to a four-year low.

Chief financial officer Jyrki Tervonen’s comment on a conference call prompted a stock-price reversal after the retailer earlier reported first-quarter earnings that beat estimates and announced the addition of its first new store brand in three years.

H&M’s inventory levels are up 30% year-on-year and profit will be hurt should the retailer have to offer deeper discounts, said Michelle Wilson, an analyst at Berenberg.

The Swedish company is struggling to keep pace with a larger rival, Zara owner Inditex, which has put a greater emphasis on e-commerce and has proved more adept at responding to shifts in consumer tastes.

“When you’ve got a very mature brand, you reach a point where it becomes challenging to keep up growth,” said Maureen Hinton, director of retail research at GlobalData in London. “You’ve got to find new markets and new customers, and respond to different elements of a customer’s life.”

The retailer suggested on the conference call that reaching a target for 2017 sales growth of 10% to 15% will be challenging, Ms Wilson said.

Mr Tervonen said markdowns will be “more aggressive” if sales don’t improve in April and May. H&M shares fell 6.5% at one stage in Stockholm, after earlier rising as much as 3.6%. The retailer said it will open its first Arket outlet in London in the fall, selling clothing and a limited range of home furnishings at prices slightly above the company’s main brand. Stores in Brussels, Copenhagen and Munich will follow, and the brand will also sell online, initially in 18 European markets. Arket is the company’s first new label since the launch of & Other Stories in 2014 and will have a focus on men. The range will be supported by a selection of external brands. Where possible, the stores will also include a cafe. H&M said first-quarter pretax profit fell 3.6% to 3.21 billion kronor (€336m). The fast-fashion retailer gets about 80% of its products from Asia, where the dollar’s strength has inflated the cost of purchases of garments.

Bloomberg