September 16, 2019 / 6:12 AM / a month ago

Summer ranges lift H&M's sales but at a price

STOCKHOLM (Reuters) - The popularity of its summer ranges helped Sweden’s H&M (HMb.ST) enjoy its strongest sales growth in three years in local-currency terms but its shares slipped on Monday on concerns over profit margins.

FILE PHOTO: An H&M sign is seen at the entrance to an H&M store in Palma on the island of Mallorca, Spain June 14, 2019. REUTERS/Anna Ringstrom

There were echoes of a report from Inditex (ITX.MC), the world’s biggest fashion retailer, where disappointing margin growth overshadowed a strong rise in sales in first half figures released last week by the owner of Zara stores.

H&M said sales before currency moves were up 8% in June-August, its third quarter, from a year ago. It was the fifth straight quarterly rise and the fastest pace recorded since the third quarter of 2016.

“Well-received summer collections and increased market share confirm that the H&M group is on the right track with its transformation work,” H&M said in a statement.

H&M, however, also said activity levels related to its transformation project — efforts to revive its business — remained high in the quarter, an indication investments in physical stores and online weighed on margins again.

“With top-line growth fuelled by investment into price and the omni-channel proposition, we believe investors may be cautious into full Q3 numbers on 3 October where we believe leverage may be limited,” said Berenberg analysts, who have a “Sell” recommendation on the shares.

H&M’s shares have soared around 50% this year on hopes that the world’s second largest fashion retailer is getting back on track after years of falling profits due to slowing sales at its core brand’s stores, and investments to adapt to tougher competition and changing shopping habits.

SLOWING DOWN

The company is controlled by Sweden’s wealthy Persson family and its Chief Executive Karl-Johan Persson is the grandson of the company founder.

The stock is still trading well below its 2015 peak of 369 crowns and many analysts remain cautious, awaiting clearer signs of recovery. On Monday, shares were down 2.3% at 186 crowns 0830 GMT to around 1-week lows.

Berenberg said local-currency growth matched expectations but given growth of 12% in June, it slowed to around 6% across July and August.

Net sales rose more than expected, by 12% to 62.6 billion crowns (£5.23 billion). Analysts had on average forecast a rise to 61.9 billion crowns, according to data from Refinitiv.

RBC analyst Richard Chamberlain, with an “Outperform” rating on the shares, said H&M probably benefited from a pick-up in its biggest market Germany after troubles with a new logistics system held back sales last year, and from its loyalty scheme rollout.

H&M will give more detail on the sales figures in connection with the release of the full earnings report on Oct. 3.

Reporting by Anna Ringstrom, additional reporting by Helena Soderpalm; Editing by Kevin Liffey, Himani Sarkar and Alexander Smith

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