H&M Surges Most in 16 Years as Sales Growth Surprises Analysts

(Bloomberg) -- Hennes & Mauritz AB shares rose the most in 17 years after the ailing Swedish fashion retailer reported sales growth that took analysts by surprise, boosting optimism the H&M chain may have turned the corner.

The stock surged as much as 18 percent Monday, adding 32 billion kronor ($4 billion) to the market value of the Stockholm-based retailer. H&M reported third-quarter revenue growth that exceeded the highest analyst estimate as it offered discounts to clear out inventory and received a boost from the weak krona.

The gain is the first glimmer of a turnaround at H&M, which has been struggling to reduce a record position of unsold garments. About a quarter of the company’s freely traded shares are shorted, according to Markit Securities data. That makes the stock prone to short squeezes, when a bit of good news gets short sellers scrambling to buy the stock back to close their positions.

Separately, the U.K.’s Mail on Sunday said Chairman Stefan Persson has talked with banks including Goldman Sachs and JPMorgan about a debt package to take the firm private, citing unidentified people close to the situation. Persson has repeatedly denied he’s planning a buyout after he made share purchases over the past year that sparked such speculation.

A spokeswoman for H&M declined to comment on the report.

H&M Surges Most in 16 Years as Sales Growth Surprises Analysts

“H&M seems to have come close to stabilizing same-store sales,” wrote Charles Allen, an analyst at Bloomberg Intelligence. “If they have managed to reduce inventory, weak margins are likely to be forgiven.”

Read what other analysts have to say about the results.

Last week, Zara owner Inditex SA reported its weakest six-month sales growth in four years. An unusually warm summer had shoppers staying away from stores and opting for lower-priced garments such as tank tops and shorts.

Key Takeaways

  • More than half of the revenue increase was due to most currencies strengthening against H&M’s reporting currency, the krona.
  • H&M also said that issues related to implementing a new logistics system raised costs in the U.S., France, Italy and Belgium in the period. The changes are designed to make H&M more efficient and integrate its store and online businesses, the retailer said.
  • A backlog resulting from the logistics issues will also affect the fourth quarter, Swedish news agency Direkt reported, citing Nils Vinge, head of investor relations. While the main problem is solved, lingering issues have to be solved before the Christmas sales season, he told Direkt.
  • The company added 40 stores in the quarter, reaching 4,841 total at the end of August.
  • H&M is scheduled to report full third-quarter results on Sept. 27.