H&M Earnings Decline on Weakest Sales Growth in Three Years

Updated on
  • Retailer says dollar’s strength will continue to inflate costs
  • Shares decline in Stockholm, reversing initial advance

Hennes & Mauritz AB reported earnings that missed analysts’ estimates as the Swedish fashion retailer was hampered by Europe’s unusually wet and wintry spring.

Second-quarter pretax profit fell to 7 billion kronor ($846 million), H&M said Wednesday, compared with the 7.23 billion-kronor estimate of analysts polled by Bloomberg. Earnings were also hurt by increased discounting and the strength of the dollar, which H&M said will continue to add to purchasing costs in the third quarter.

A cold, rainy spring has added to the challenges faced by European retailers as consumers curb spending on clothing. H&M’s quarterly sales growth was the weakest in three years. Still, the weather didn’t stop Zara owner Inditex SA reporting a 6 percent increase in earnings in the three months through April, aided by its fast distribution system. H&M is more sensitive than Inditex to the strong dollar, which raises garment prices in Asia.

The results ‘‘resemble a company under pressure,” wrote Simon Bowler, an analyst at Exane BNP Paribas. ‘‘We can’t see an end or solution to these headwinds.”

The stock fell 0.6 percent to 249.20 kronor as of 10:13 a.m. in Stockholm, reversing initial gains.

Sub-par sales have caused a build-up of inventory, which reached 13.7 percent of sales, compared with 11.8 percent a year earlier. Snowfall in Germany -- H&M’s largest market -- hurt sales in April, according to H&M, which also blamed an early Easter this year for lackluster growth in March. May sales rose 11 percent excluding calendar effects.

“There is little in today’s results to suggest that earnings momentum will become more positive in the near term,” said Jamie Merriman, an analyst at Sanford C. Bernstein.

Sales increased 7 percent in local currencies in the first three weeks of June, H&M said. That was below the consensus of estimates, Merriman said.

The retailer said the dollar’s effect may be neutral in the fourth quarter.