H&M reports Q2 profit miss as tighter inventory hit sales
H&M’s Second Quarter Financial Performance Overview
Profit Results and Analyst Expectations
STOCKHOLM, June 25 (Reuters) - Swedish fashion retailer H&M reported on Thursday a smaller-than-expected March-May profit as it was unable to fully meet demand after reducing the amount of clothing it keeps in stock, and predicted unchanged June sales.
Operating profit in H&M's fiscal second quarter was unchanged year-on-year at 5.91 billion crowns ($606.5 million), having risen three quarters in a row, against a mean forecast in an LSEG poll of analysts of 6.38 billion.
Sales Performance and Forecast
Sales measured in local currencies were roughly flat in the quarter, and H&M predicted flat local-currency sales also in June, year-on-year.
Management Commentary and Inventory Strategy
CEO Daniel Erver said in a statement that quarterly sales were somewhat lower than planned.
Profitability and Inventory Management
"The profitability improvement and increased inventory productivity are in line with our long-term work to lay the foundations for sustainable and profitable growth. The tighter inventory management has, however, in some cases affected our ability to fully meet demand," he said.
Impact of Restructuring Costs
Excluding a one-off restructuring cost of 679 million crowns, related to organisational changes, operating profit rose 11%.
Market Conditions and Competitive Landscape
External Factors and Margins
The quarter was closely watched for how H&M weathered the Iran war's impact on consumer confidence and costs. Profit margins held up, with the gross margin widening to 56.6% from 55.4% a year earlier against an expected 56.5%.
Future Outlook
H&M said it expected markdowns in the third quarter to be on a similar level to a year ago.
Strategic Initiatives and Market Competition
Product and Marketing Innovations
Erver is trying to attract more shoppers with trendier styles and overhauled marketing. On May 7, H&M launched a collection in collaboration with designer Stella McCartney.
Competitive Pressures
While H&M's profit margins have been improving, sales have been more sluggish as cut-price online retailers like Shein compete for price-sensitive customers while Inditex's Zara dominates the upmarket end of fast fashion.
Additional Information
($1 = 9.7448 Swedish crowns)
(Reporting by Greta Rosen Fondahn in Stockholm and Helen Reid in London, editing by Anna Ringstrom)
