H&M Revenue Stagnates as Retailer Tries to Clear Inventory

(Bloomberg) -- Hennes & Mauritz AB is reeling from discounts that are eroding sales as the struggling Swedish clothing retailer tries to reduce a record level of inventory.

Sales were unchanged in local currencies, including value-added tax in the three months through May, the Stockholm-based company said in a statement Friday. Revenue excluding tax rose 1.2 percent to 51.9 billion kronor ($5.9 billion), missing the average analyst estimate. The stock fell as much as 4.2 percent in early trading.

“It’s worrying,” said Magnus Raman, an analyst at Handelsbanken. He estimates like-for-like sales for the past 12 months have dropped 6.8 percent, making it harder to invest in improving the business. “The consensus estimate was already at very low levels and still the company doesn’t manage to meet them,” he said.

H&M has struggled to keep up with its competitors after fashion mistakes and delivery hiccups have made customers turn elsewhere. The company reported a record level of inventory exceeding $4 billion at the end of the first quarter despite increasing markdowns. Even amid the problems confronting the company’s centerpiece H&M chain, Chief Executive Officer Karl-Johan Persson, the 43-year-old scion of the company’s founding family, had been adding new formats including Afound discount shops and Arket, which sells housewares such as vases and cutlery.

The stock has attracted short sellers, who have bet against almost 15 percent of its shares, according to Markit Securities. Short sellers borrow a stock and sell it, hoping to buy it back at a lower price and pocket the difference.

H&M’s report comes three days after Zara parent Inditex SA reported weaker-than-expected sales in its first quarter. European clothing retailers had suffered from unusually cold weather in the first months of this year. Brick-and-mortar shops have also been facing increasing competition from online sales as consumers become more comfortable receiving clothes in the mail and returning them if they don’t fit.

While H&M is still adding stores, it’s slowing expansion. The retailer had 4,801 stores at of the end of May, about 1 percent more than at the end of last fiscal year. H&M’s target is 220 net additions in 2018, based on plans to shut 170 stores and add 390.

The stock fell 2.7 percent Thursday after Swedish news website Breakit reported that Chairman Stefan Persson said that speculation that he’s planning to take the fashion retailer private are “baseless.”

--With assistance from Hanna Hoikkala.

To contact the reporter on this story: Anna Molin in Stockholm at amolin3@bloomberg.net

To contact the editors responsible for this story: Christopher Kingdon at ckingdon@bloomberg.net, ;Eric Pfanner at epfanner1@bloomberg.net, Thomas Mulier, John J. Edwards III

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