H&M Sinks on Doubts about Margin Target and June Sale Drop

A view shows an H&M warehouse at Magna Park in Milton Keynes, Britain, September 26, 2021. (Reuters)

H&M cast doubt over its full-year profit margin target on Thursday after missing quarterly earnings forecasts and predicting a fall in June sales, sending shares in the world's No.2 listed fashion retailer down almost 14%.
Sales this month are likely to fall 6% in local currencies versus a year earlier, partly due to poor weather in many markets, the Swedish company said.
CEO Daniel Erver said H&M still stood by its 10% operating margin goal for 2024, but that it had got harder to reach, Reuters said.
"External factors that influence our purchasing costs and sales revenues, including materials and foreign currency, will have a more negative impact than we expected in the second half," he said.
"The most important prerequisite for achieving our goal is that sales growth is further strengthened in the second half of the year compared with the second quarter increase," he added.
Analysts are likely to cut their full-year estimates for H&M's earnings per share by 1-2% based on Thursday's update, brokers DNB Markets said in a note to clients.
H&M has often fallen short of Zara owner Inditex, while China-founded fast-fashion group Shein is expanding rapidly in Europe and plans a London stock market listing.
H&M shares fell nearly 14% at market open and were down 12.5% at 0833 GMT, on track for its biggest single-day decline in over two years and the worst performance in the pan-European STOXX 600 index.
The stock is up 9% in the last 12 months, significantly lagging Inditex' 35% rise.
JPMorgan said the update was disappointing.
"We .... indeed think that the June sales and margin commentary could weigh on the wider sector," the broker said.
H&M has struggled to win back customers, with its core of cost-conscious shoppers reluctant to spend as inflation ate into purchasing power.
The Swedish group said net sales in its March-May second quarter rose 3% in local currencies versus a year earlier, with growth in all customer groups and a positive trend in all regions.
Operating profit was 7.1 billion Swedish crowns ($672.5 million), up from 4.74 billion a year earlier but below a mean forecast of 7.37 billion in an LSEG poll of analysts.