H&M, Debenhams illustrate high street pressures on clothing retailers

Two big retailers have laid bare just how bad the clothing market really is.

Hennes & Mauritz (H&M), the Swedish fast-fashion chain that operates stores throughout Europe and the US, suffered its weakest sales growth in three years in the second quarter.

March and April were “significantly below” forecasts after unseasonably cold weather, it said yesterday.

Meanwhile, same-store sales turned negative in the 15 weeks to June 11 at Debenhams, as the hit from the poor weather was compounded by a knock to consumer confidence from the looming referendum on whether the UK should leave the EU.

Debenhams shares had their worst day this year while H&M’s fluctuated. Both maintained their discount, measured by their forward price-to-earnings ratio, to their peers.

Their outlook is softer than for some big rivals such as Inditex, owner of the Zara clothing store chain so that discount looks justified.

H&M is more exposed than Inditex to the dollar’s strength as it buys about 80% of its stock from suppliers in Asia, who are paid in dollars, compared with about 35% for Inditex.

The company said the stronger greenback will continue lifting its costs in the third quarter.

It also said stock at the end of the second quarter was up 29%, and now accounts for 13.7% of sales, compared with 11.8% previously.

That surplus, which it partly attributed to weaker-than-expected sales, suggests further markdowns to come that could heap pressure on profits.

As for Debenhams, it has already moved into its sale period.

So even if a vote for Britain to remain in the EU helps revive consumer spending, or if there’s a heatwave that lifts demand for summer clothing, the full effects won’t fall through to the bottom line of the current period. 

Neither M&S nor Next have begun their sales, so they could benefit more from a late boost in spending.

In addition to the factors that were important in the current period, both H&M and Debenhams highlighted a general weakness in the clothing market over the last few months.

Bloomberg


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