H&M Price Cuts Take Shine Off Sales Growth; Shares Tumble

(Bloomberg) -- Hennes & Mauritz AB reported its fastest quarterly sales growth in three years, though analysts said the big question is how much the struggling Swedish retailer cut prices on clothes to clear excess inventory. The shares fell in Stockholm trading.

• Revenue rose 12 percent to 56.4 billion kronor ($6.2 billion) in the three months through November, according to a statement Monday. Analysts expected sales of 56.1 billion kronor. The figures exclude value-added tax.

Key Insights

• While the gain may make bulls more optimistic that H&M is reducing its record inventory position, investors may react coolly after a recent rebound in the stock. H&M also had a very easy quarterly comparative. It may be hard to raise prices in December after offering such big discounts in November, Richard Chamberlain, an analyst at RBC Capital Markets said.
• It won’t be clear until full results are published on Jan. 31 what effect the sales spurt had on earnings. It’s possible a lot of the sales growth wasn’t very profitable: H&M has recently been selling sweaters for as little as $9.99.
• Favorable currency shifts supplied half of the growth; excluding foreign-exchange movements, sales grew 6 percent in the quarter. Rival Inditex SA faces a currency headwind, which crimped revenue in its most recently reported quarter.

Market Reaction

• The stock fell as much as 2.9 percent in early trading. H&M had gained 27 percent in the three-month runup before the results as sentiment toward the embattled retailershifted. The shares have been buoyed by share purchases by Chairman Stefan Persson and Ikea’s investment company Interogo Holding.

Get More

• For the statement, click here
• For more details, click here
• For more on rival Inditex SA’s earnings, click here

--With assistance from Hanna Hoikkala.

To contact the reporters on this story: Thomas Mulier in Geneva at tmulier@bloomberg.net;Niklas Magnusson in Stockholm at nmagnusson1@bloomberg.net

To contact the editors responsible for this story: Eric Pfanner at epfanner1@bloomberg.net, John J. Edwards III, Marthe Fourcade

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