Frankfurt: Hennes & Mauritz AB, Europe’s second-largest clothing retailer, reported third-quarter profit that missed analysts’ estimates as a reduction in cotton prices failed to shore up profitability.
Net income rose 0.9 per cent to 3.62 billion kronor ($550 million) in the three months ended August 31, Stockholm-based H&M said on Thursday, compared with the 4.05 billion-kronor average estimate of 14 analysts compiled by Bloomberg.
While sales in the quarter increased 10 per cent at local currency rates, the gross margin narrowed to 58.2 percent from 58.6 percent a year earlier. Lower cotton prices, which analysts had expected to boost profitability, had a “neutral to positive effect,” H&M said. Currency shifts, mainly the strength of the krona against the euro, reduced profit by about 200 million kronor, the company said.
“I’m surprised that cotton was not more of a benefit to gross margin in the third quarter because the commodity price more than halved last year - the benefit should now be flowing through to H&M,” said Anne Critchlow, a London-based analyst at Societe Generale. “We knew about the currency effects.”
H&M fell as much as 3.9 per cent in Stockholm trading, the steepest drop since May 14. The stock was down 3.5 percent at 237.8 kronor as of 9:15 a.m., the steepest decline in the Swedish benchmark OMX Stockholm 30 Index.
The company also said today it’s delaying the start of online sales in the US until summer next year.
Store expansion
“The delay in US online sales is disappointing strategically, but it does illustrate the fact that H&M does have a slow roll-out online,” Critchlow said.
In contrast, H&M said it will step up store expansion, adding about 300 stores in the financial year through November compared with a previous estimate of 275 outlets.
The retailer, which sells jeans for less than €30 ($39), has focused expansion on Asia and the U.S. to help offset a slowdown in European consumer spending as the region’s economy edges toward its second recession in three years. Larger competitor Inditex SA said on September 19 that sales have accelerated since July, helped by expansion in emerging markets.
“Conditions in the fashion retail industry continued to be challenging in many markets - both as regards the weather and the macroeconomic climate,” Chief Executive Officer Karl-Johan Persson said in a statement today.
European Heat Wave
The Swedish retailer reported third-quarter sales that missed analysts’ estimates on September 17 as a heat wave across parts of the region kept shoppers away last month. Sales in the period September 1 to 25 were up 14 per cent, adjusting for calendar effects and currency shifts, the company said today.
H&M earnings contrast with Inditex’s. The Spanish retailer said on Sept. 19 that sales have accelerated since July and reported first-half profit that beat analysts’ estimates, helped by expansion in emerging markets.
“Inditex is fast fashion so it has a compelling product, which sells whatever the weather, whatever the macro-economic conditions,” Critchlow said. “Inditex is rolling out online very rapidly, boosting like-for-like sales growth. Inditex has very high exposure to fast-developing emerging markets.”
