June 15, 2018 / 6:16 AM / 2 months ago

Turnaround a distant dream for H&M as sales flatline

STOCKHOLM (Reuters) - Sweden’s H&M (HMb.ST) reported no sales growth for a full six months on Friday, as the world’s second-largest fashion retailer struggles to get customers through its doors and loses further ground to rival Inditex.

FILE PHOTO: People queue outside the Swedish fashion retailer Hennes & Mauritz (H&M) store on its opening day in central Moscow, Russia, May 27, 2017. REUTERS/Maxim Shemetov

H&M’s profit has shrunk over the past couple of years as fewer shoppers visit its budget H&M fashion stores, which account for the bulk of its revenue. Its other, more successful brands include mid-priced COS, & Other Stories and Arket.

H&M said on Friday local-currency sales in the March-May period were unchanged from the same period a year ago, the second quarter of no growth and below the 0.5 percent increase expected by analysts polled by Reuters.

Its shares have gyrated recently after stock purchases by the founding Persson family which prompted rumors of buyout plans. Chairman Stefan Persson on Thursday dismissed those rumors. The stock was down 3.8 percent by 1037 GMT, having lost nearly two-thirds of its value since 2015.

Investors are not convinced the company has a viable plan to keep up with the rapid digitalization of the retail industry. H&M has guided investors to expect lower comparable-store sales in 2018 than in 2017.

Quarterly net sales rose 1 percent to 52.0 billion crowns ($5.9 billion), below expectations for a 3 percent rise.

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“We think (this) will raise concerns about additional markdowns and operating deleverage heading into the HY results on June 28. We remain cautious on H&M,” said RBC analyst Richard Chamberlain, who has an “underperform” rating on the shares.

“H&M has now posted around three years of negative LFL (like-for-like) sales yoy (year on year). For Q2 we estimate LFL sales were down 4 percent to 5 percent yoy.”

GROWING DISPARITY WITH ZARA OWNER

In contrast, H&M’s top rival Inditex (ITX.MC), owner of Zara, on Wednesday reported local-currency sales growth of 7 percent for its February-April quarter and 9 percent growth in the following six weeks.

Macquarie analyst Andreas Inderst, who has a neutral stance on H&M’s shares, said weak comparable sales and large markdowns would hit H&M’s profit in the second quarter.

“We expect a key progress report on its excess stock and an update on its action plan to revive sales with the full set of Q2 results,” he said.

“We highlight the ongoing sharp performance divergence versus Inditex, which delivered 4-5 percent like for like growth in the quarter to end April versus the 5 percent decline at H&M.”

H&M in 2017 launched a review of its mix of stores and brands, with more H&M store closures and faster expansion of its newer brands. It is also working on a new H&M store concept.

The launch this week of multi-brand discount marketplace Afound takes the number of H&M’s brands to 9, in line with Inditex. But around 9 of 10 stores are still the H&M brand while at Inditex, Zara accounts for fewer than 4 of 10 of its stores.

Inditex has also been outperforming H&M because of its more flexible supply chain, although it too now needs to venture into tech innovation to keep up with new and faster online players.

H&M vs Inditex: reut.rs/2ycMpQt

The Persson family, which has more than two-thirds of votes in H&M, has bought several billion crowns worth of shares in the company over the past few months.

Some investors have raised concerns CEO Karl-Johan Persson, grandson of the founder and son of the chairman, may not be best placed to get the group back on track.

Reporting by Anna Ringstrom; editing Jason Neely and Elaine Hardcastle

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