H&M reassures on pricing after profit slide

STOCKHOLM: Shares in H&M rose on Thursday after the fashion retailer reassured investors that it would not need to cut costs further to shift unsold clothing despite a bigger than expected 20 per cent fall in quarterly profit.

The Swedish company reported teething problems with a new logistics system designed to improve its supply chain but said it did not expected increased discounting in the current quarter because of what it called the “quality and balance” of its inventories.

H&M has seen profits shrink and inventories pile up over the past couple of years as its core budget chain has lost sales to low-price high-street rivals like Primark and online competitors such as ASOS and Zalando. It has invested heavily in logistics and digitalisation and is reviewing its mix of stores and brands and is also working on a new H&M store concept.

“The rapid changes in the fashion industry are continuing and the H&M group is in an exciting transitional period,” CEO Karl-Johan Persson said. “Our transformation work has contributed to a gradual improvement in sales development with increased market share in most markets during the third quarter.”

However, June-August pretax profit for the sector’s second-biggest after Zara owner Inditex shrank 20 per cent from a year ago to 4.01 billion crowns ($454 million) against a Reuters poll forecast for a 16 per cent drop.

Markdowns increased by 0.7 percentage points, and inventories 15 per cent to 38.7 billion crowns or 19 per cent of sales in the period, the third quarter of its financial year. RBC analyst Richard Chamberlain saw the earnings as a mixed bag.

“We still see the risk to consensus estimates as on the downside, however H&M is working its way through some of its issues and has given more reassuring guidance on markdowns for Q4, expected at this stage to be flat yoy (year-on-year),” said Chamberlain, who has a “Neutral” rating on the stock. H&M is rolling out a new logistics system to make its supply chain faster and more efficient and better integrate its more than 4,700 stores with its website. — Reuters