H&M Sounds Sour Note as It Puts Turnaround Plans on Stage

(Bloomberg) -- Hennes & Mauritz AB rented a historic Stockholm concert hall for Chief Executive Officer Karl-Johan Persson to explain the struggling apparel chain’s turnaround plans to shareholders. The message fell on deaf ears.

H&M’s shares dropped as much as 5.7 percent after the retailer said it expects sales in comparable stores to continue to slide this year, requiring further markdowns to clear away inventories. The Swedish company’s prediction of a 2019 rebound failed to reassure investors, several hundred of whom gathered for the company’s first capital markets day.

“This is like a teenager with bad grades who says, ‘Next year, next year.’ No, I want it this year,” said Claes Hemberg, investment adviser at Avanza AB.

H&M Sounds Sour Note as It Puts Turnaround Plans on Stage

The investor meeting, at the Cirkus arena in Stockholm, put the Persson family running the company face-to-face with investors who’ve seen H&M shares tumble as the fast-fashion pioneer loses touch with shoppers. The company has been unable to keep up with rival chain Zara and nimbler online competitors such as Amazon.com Inc., Zalando and Asos, and it’s speeding up store closures in response.

H&M said it’s ramping up its e-commerce business, and expects those sales to rise by at least 25 percent this year. It’s also counting on non-H&M formats like COS, Weekday and newly launched Arket for growth.

New Brands

Showing off new children’s lines, trousers and T-shirts at the Stockholm event, the company said it expects the side brands to nearly triple sales by 2022. But they account for less than one-tenth of overall revenue, so that won’t immediately fix what’s ailing H&M -- a challenge Persson acknowledged in an interview.

“We feel confident about online and same thing with the new-business portfolio,” he said. “All new stores we open we’re able to estimate well. What is difficult to say something about is H&M comparable stores.”

H&M said it convened the event in an effort to provide more clarity about its plans, following criticism that the family-controlled retailer lacked transparency. The company broke with tradition by breaking out the revenue contribution of e-commerce and non-H&M brands.

As investors peppered him for detail, however, Persson mostly stuck to the script. Chairman Stefan Persson, Karl-Johan’s father, mingled with investors, many of whom had flown in from London for the event. While prodding the organizers to speed up the lunch break to stop visitors from leaving, he declined interview requests.

After a record sales decline in the fourth quarter, H&M announced the creation of a new label, Afound, to sell marked-down clothing. The company is also refurbishing physical stores while directing investments toward e-commerce and faster supply-chain technology. H&M devoted almost half of its investment spending in 2017 to its digital offering.

‘Beautiful Words’

Some investors expressed frustration with the lack of firm commitments in the near term.

“The guidance was good and the spirit positive, but H&M has missed its targets significantly so far,” said Joakim Bornold, investment adviser at Nordnet AB. “So what are today’s beautiful words worth?”

Earlier this week, H&M abandoned a proposal to help allow shareholders, including the Persson family, to reinvest in the company rather than receive dividends.

“We have a very strong financial position,” Karl-Johan Persson said. “We have zero in net debt, so we have a flexibility and the board has looked at our forecasts and investment plans and decided this is the second-best option.”

©2018 Bloomberg L.P.