H&M Second-Quarter Profits Decline

STOCKHOLM, Sweden — Hennes & Mauritz AB reported profit that missed analyst expectations and said its inventory levels increased further as the Swedish retailer suffered from logistics issues that snarled shipments.

Pretax profit slumped 22 percent to 6.01 billion kronor ($670 million) in the three months through May, according to a statement on Thursday. Analysts expected 6.28 billion kronor.

"The first half of the year has been somewhat more challenging than we initially thought, but we believe that there is a gradual improvement and that we will see a stronger second half," chief executive Karl-Johan Persson said in the statement.

H&M has been struggling to adapt to the new digital landscape as customers increasingly abandon its physical stores to instead buy garments online. It has also had problems with its assortment, resulting in markdowns that put pressure on profit. Sales data released earlier this month showed that second-quarter sales were unchanged in local currencies, including value-added tax, despite the fact that H&M added a net 303 stores in the 12 months through May.

The company’s stock-in-trade rose 13 percent and amounted to 18.2 percent of sales, compared with 16.1 percent a year earlier. The retailer said in March that inventories should come down to the targeted level of 12 percent to 14 percent of sales during 2019 as sales pick up in the second half of this year. H&M said it will need to increase markdowns this quarter.

H&M’s shares have slumped 20 percent so far this year.

By Niklas Magnusson; Editors: Jonas Bergman, Tasneem Hanfi Brögger, Thomas Mulier, John J. Edwards III.