H&M Shares Fall as Sales Growth Continues to Disappoint

Hennes & Mauritz AB shares declined as the company posted weaker-than-expected sales growth, showing chief executive officer Daniel Erver’s turnaround strategy for the Swedish fast-fashion retailer faces hurdles.

Sales, which edged up 3 percent in local currencies for the fourth quarter, rose by less than analysts had projected during the crucial Christmas trading period, showing the new CEO has challenges ahead. Erver, who took the helm a year ago, has focused on everything from fixing product selection to cutting excess inventories and marketing in the face of competition from Zara-owner Inditex SA and upstart online challengers like China’s Shein.

“H&M has taken various steps to improve its offer for customers, which should lead to a stronger sales performance in time,” RBC analyst Richard Chamberlain said in a note. “However, a lot of things have to improve together and as such we think the recovery is likely to be somewhat patchy and inconsistent.’

H&M tumbled as much as 5.9 percent in early Stockholm trading. As of Wednesday, the shares had fallen about 8.4 percent in the past year, in contrast with Inditex, which has risen 29 percent. The Spanish company is slated to report full-year results in March.

The sales weakness came even as the company posted operating profit for the three months ended November of 4.6 billion Swedish kronor ($420 million), beating analysts’ estimate of 4.3 billion kronor. The operating margin was also higher than expectations at 7.4 percent.

In a bid to attract cash-conscious shoppers the company invested heavily in marketing and on strengthening the brand, including by recruiting celebrities popular with Gen-Z such as Charli XCX and Lila Moss fronting the Autumn/Winter 2024 collection to target a demographic it has found difficult to win over.

H&M had already warned in September that it was unlikely to hit an operating margin target of 10 percent for the full year, citing “external factors,” including the cost-of-living crisis.

The retailer saw little improvement in reducing its stubbornly high inventory levels, attributing it to extended transport times associated with the situation in the Red Sea, and on Black Friday, which occurred later than in the previous year.

Erver may need to move faster, and rapidly work through excess inventories that weigh on margins, Bloomberg Intelligence analyst Charles Allen warned earlier this month. The company needs to find a path to expand its revenue to achieve its margin growth, he said.

Erver took charge of the Stockholm-based company from Helena Helmersson, who stepped down abruptly a year ago. Erver, an H&M veteran, has said he wanted to improve the clothing products the chain sells, the look and feel of H&M’s stores and its marketing efforts in a bid to attract cash-conscious shoppers.

By Rafaela Lindeberg

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