Shankul Bhandare
Hennes & Mauritz, the world’s second-largest publicly traded fashion retailer, experienced a sharp drop in its share price on Thursday after issuing a sales warning for June due to unfavorable weather conditions.
Shares in the Swedish company fell by 15 percent as the market turned its attention to the group’s performance for the remainder of the year. This decline occurred despite a 50 percent increase in operating profits, which reached SKr7.1 billion ($672.5 million) from March to May compared to the same period last year. Net sales also rose by 3 percent to SKr59.6 billion.
Chief Executive Daniel Ervér, who assumed his role in January, stated, “The situation in the world around us remains uncertain, and households continue to face high living costs.”
For over a decade, H&M has faced significant challenges, losing its position as the world’s largest fashion retailer to Zara owner Inditex and struggling with weak profitability and high inventory levels.
H&M has also faced increasing competition from new low-cost retailers like Shein and Temu.
Despite being in a “robust financial position,” Ervér cautioned that external factors, such as rising material costs and foreign currency fluctuations, could negatively impact purchasing costs.
“This will have a more negative impact than we expected in the second half of the year,” he said.
The group has been focusing on improving profitability rather than sales growth by closing stores and raising prices.
On Thursday, the company announced that its gross margin for the second quarter increased to 56.3 percent from 52.7 percent, with Ervér calling it “our best results in many years.”
Richard Chamberlain, a retail analyst at RBC Capital Markets, noted that “current trading was a little softer than we expected” but acknowledged that the family-controlled group had implemented “various steps to enhance its offering for customers, which should lead to stronger relative sales performance.”
“We also see potential for the company to move closer to its 10 percent operating margin target this year due to gross margin improvements and further cost efficiencies,” he added.
