Swedish ready-to-wear giant Hennes and Mauritz (H&M) on Thursday said profits fell in the second quarter as too much stock, triggered by logistics problems, pulled prices further down amid declining sales in key markets.
H&M's net profit fell by 21 percent to 4.6 billion kronor (446 million euros, $515 million) from March to May, burdened by the transition of its logistics system to make the supply chain faster.
"These transitions are complicated and can result in temporary interruptions, as unfortunately occurred during the second quarter in some of our major sales markets," H&M CEO Karl-Johan Persson said in a statement. "Total sales for the quarter were not satisfactory, which meant that inventory levels were still too high at the end of the period," he added. Sales in the US, Germany and France, the company's three largest markers, fell by 13 percent, two percent and five percent, respectively.
"Things are looking tough for H&m...Karl-Johan Persson keeps reiterating that the tide will turn but today's report shows it's not the case," Joakim Bornold, economist at Nordnet bank, told AFP. H&M share prices fell early Thursday by 3.3 percent on the Stockholm stock exchange but later rose, trading more than three percent higher in the afternoon. "If you buy H&M shares you must have a long-term view and reasonable expectations. It takes time to speed up sales and shut down unprofitable stores," Johanna Kull, economist at the Swedish online stock broker Avanza, told the financial daily Dagens Industri. Christopher Lyrhem, an equity strategist at the Swedish bank SEB, said some investors could be covering short positions they had taken in H&M stock before the announcement, which could explain the sharp rise.
Turnover rose by 1.5 percent to 60.4 billion kronor, thanks to dynamic sales in Northern and Eastern Europe.
"The only positive thing I can highlight about today's report is that it could have been worse," Joakim Bornold said. Year-on-year, inventories rose by 13 percent, a proportion the group described as "too high" and attributed to imbalances in the range of shops. H&M said it would seek to correct this during the third quarter sales period, which would lead to additional discounts.