business

H&M Falls to Nine-Year Low as Clearance Sale Backfires

Updated on
  • Analyst estimates same-store sales declined 8% last month
  • Retailer struggles with inventory, which reached 1/6 of sales
H&M Falls to Nine-Year Low

Hennes & Mauritz AB shares fell to their lowest in nine years after the Swedish clothing retailer’s attempt to clear inventory ate into revenue.

H&M slashed prices to get rid of unsold winter garments after unseasonably warm European weather in December and January. That’s weighed on profitability and complicated the clothing chain’s turnaround efforts.

The shares fell as much as 5.2 percent Thursday after the second straight quarterly sales decline. The downbeat report indicates further weakness among apparel retailers hit by the shift to online shopping, after Zara parent Inditex SA reported its weakest annual sales growth in three years Wednesday.

Inventory Surge

H&M's stock-in-trade reached the highest levels in at least two decades last year

Source: H&M financial reports

H&M said revenue fell 1.7 percent to 46.2 billion kronor ($5.6 billion) in the three months through February, missing analysts’ estimates. That implies an 8 percent decline in February same-store sales, according to Richard Chamberlain, an analyst at RBC Europe.

“This performance was all the more disappointing in that H&M has certainly carried out an aggressive promotional activity during this quarter to clean up excess inventory,” wrote Cedric Rossi, an analyst at Bryan Garnier & Co.

H&M’s shares have slumped 40 percent in the past six months as investors question the company’s ability to address falling sales in its core brand’s vast store network. Its first-ever capital-markets day last month did little to assuage investors’ concerns, with the shares falling 4.6 percent that day.

Slumping Expectations

The average analyst H&M price target has dropped to the lowest level since 2005

Source: Data compiled by Bloomberg

The company has struggled to keep up with rival chain Zara and online competitors such as Amazon.com Inc., Zalando and Asos, and is speeding up store closings in response. It’s also ramping up its e-commerce business and betting on non-H&M formats like COS, Weekday and Arket for growth.

— With assistance by Hanna Hoikkala

(Updates share price in third paragraph.)
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