H&M Warns Weak September Sales May Hit Fourth-Quarter Profit

  • Revenue growth slows to 1%, slowest pace in 13 months
  • Retailer plans to introduce as many as 2 brands next year

Hennes & Mauritz AB said it may need to continue cutting prices in the fourth quarter following a weak start to the autumn season, compounding the subdued outlook facing European fashion retailers.

Revenue growth decelerated to about 1 percent this month excluding currency shifts, the slowest pace in more than a year, the Stockholm-based company said Friday, missing analysts’ estimates. Markdowns eroded third-quarter profit margins by 1.1 percentage points.

Europe’s fashion retailers have been suffering lately from an unseasonably warm end to summer and a lack of compelling fashion trends. Next Plc Chief Executive Simon Wolfson earlier this month likened business conditions as close to a recession. The risk is rising that price competition in the industry escalates, H&M said Friday.

“We’ve already seen in the past couple of weeks, competitors, peers getting panicked and starting their mid-season sale before the season even started,” Nils Vinge, head of investor relations, said on a call with investors.

H&M shares fell 2.4 percent to 243.10 kronor at 9:56 a.m. in Stockholm.

Europe’s second-largest fashion retailer, which also operates the COS and Monki chains, said it plans to introduce as many as two brands next year, seeking more diversification from its eponymous label.

The earnings outlook for next year will be helped by a gradual reduction in the pace of investment, which has been higher than normal as it prepares the new brands and adds online shopping, IR head Vinge said.

Pretax profit fell 9.1 percent to 6.3 billion kronor ($730 million) in the third quarter, which ran through August, H&M said. Analysts expected 6.37 billion kronor. Inventory surged 24 percent, mostly due to unsold autumn wear, and that position should improve, Vinge said.

For a Gadfly commentary on how H&M is getting squeezed, click here

“September was a difficult month from a weather perspective, but H&M monthly sales have been disappointing more often than not over the past year,” Societe General analyst Anne Critchlow said by e-mail.

The company plans to add e-commerce in 11 markets and open 425 net new stores this financial year. In 2017, H&M intends to open stores in four to five new markets, including Colombia, Iceland and Kazakhstan.

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