H&M shares drop 13% after CEO casts doubt on June sales, margin target

H&M shares tumbled 13% Thursday after the CEO cast doubt on the retailer’s ability to reach its full-year margin target and predicted lackluster June sales.

Sales this month are likely to fall 6% in local currencies versus a year earlier, partly due to poor weather in many markets, the Swedish company said.

CEO Daniel Erver said H&M still stood by its 10% operating margin goal for 2024, but that it had got harder to reach.

H&M’s second-quarter earnings fell short of analysts’ expectations. AFP via Getty Images

“External factors that influence our purchasing costs and sales revenues, including materials and foreign currency, will have a more negative impact than we expected in the second half,” he told Reuters.

The group said it would need stronger sales growth in the two remaining quarters to hit the margin target, which it aims to achieve by offering more discounts.

H&M offered fewer discounts in June, which was a positive sign for the long run but had a negative impact for the month, Erver told analysts and reporters.

The stock fell 13% to $3.16. it was H&M’s largest single-day drop since the early 2000s.

H&M’s net sales in March-May, the second quarter of its fiscal year, rose 3% in local currencies versus a year earlier.

Operating profit was 7.1 billion Swedish crowns ($672.5 million), up from 4.74 billion a year earlier but below a mean forecast of 7.37 billion in an LSEG poll of analysts.

CEO Daniel Erver warned June sales would lag due to poor weather. via REUTERS

The worse-than-expected earnings come at a time when many consumers are facing high costs-of-living due to inflation and retailers are seeing a drop in post-pandemic spending.

The Swedish group also has been squeezed between the rock-bottom prices of Shein and Zara parant Inditex’s higher-end fashions aimed at more upmarket customers.

Yet Erver is optimistic about H&M’s third quarter.

The less-than-expected earnings come at a time when many consumers are facing high costs-of-living due to inflation and retailers are seeing a drop in post-pandemic spending. Richard Levine / Demotix

He said he expects profits to pick up as the weather improves and consumers gravitate toward a new, well-received spring and summer clothing collection.

“We are more confident about the rest of the quarter than what we have seen in the first month,” he said.

The CEO also said the company has been expanding its online and in-store presence, with an updated online store that will be introduced in the fall and upgraded stores in New York, London, Seoul and Tokyo.

With Post wires