Swedish budget fashion retailer Hennes & Mauritz posted weak August sales today, sending its shares lower despite a bigger-than-expected gain in its latest quarterly profits.
The world's third-biggest clothing retailer by sales said consumers were holding back during the economic downturn, while price competition was tough. Unusually warm weather in many parts of Europe at the end of the quarter had also curbed sales, it added.
"During the recession the customers have become more attracted to markdowns. H&M's summer sale sold out quickly resulting in fewer markdown items left for H&M in August compared to the market in general," the company said.
H&M reported pretax earnings for the quarter ended Auguste 31st of 4.77 billion Swedish crowns ($695 million). That compared with a mean forecast of 4.75 billion in a Reuters poll and a year-ago 4.59 billion.
But total sales in August fell 3 per cent year-on-year in local currencies versus a consensus forecast for a 5 per cent rise while turnover in stores open a year or more fell 11 per cent versus a forecast fall of 5 per cent.
In the quarter in total, sales increased 13 per cent. In local currencies, that increase was 3 per cent.
Soren Lontoft Hansen, retail analyst at Sydbank, said: "It seems H&M has had a very tough quarter once again in a market where the consumer is holding back spending and is still seeking discount. That seems to affect H&M sales."
Weak consumer sentiment during the global downturn has hit retailers hard.
But H&M and Spanish Inditex, Europe's biggest clothing retailer, which owns the Zara chain, have so far weathered the downturn better than mid-market rivals such as Britain's Marks & Spencer and Next, helped by a focus on low-cost, fast-moving fashions, and geographic spread.
Shares in H&M fell 2.7 per cent to 397.50 crowns at 0753 GMT while the DJ Stoxx European retail index was down 1.7 per cent.
Anders Wiklund, analyst at Evli Bank, said the report looked "fairly OK" despite disappointing sales. "(The figures) show they are on top of their costs and can deliver good profitability."
The retailer's quarterly gross margin rose to 61.6 per cent from 60.8 per cent, topping a forecast 60.0 per cent.
It said bigger price reductions in the quarter had a negative impact on the gross margin of 1.0 percentage unit compared with the same quarter last year, but currency hedges for the internal flow of goods had a positive effect on the gross margin of 0.6 percentage unit.
Inditex and Next, Britain's second-largest fashion chain, posted forecast-beating profits last week, on the back of tight costs and stocks management and better summer sales than expected. But they remained cautious on any revival in consumer spending.
In an escalating battle for online customers, H&M said it planned to launch Internet sales in Britain in the autumn 2010 - around the time Inditex is doing a similar launch. Next is also looking to grow its online business in continental Europe.
H&M, with more than 1,800 shops in over 30 countries, also has online sales in Sweden, Norway, Denmark, Finland, the Netherlands, Germany and Austria.
The group raised its expansion target for the full year to around 240 stores net from its previous target of 225 stores.
Reuters