H&M boosted by reassurance on pricing, new collections

Reuters
Swedish multinational clothing-retail company H&M CEO Karl-Johan Persson is photographed during an interview with TT News Agency at the company's headquarters in Stockholm, Sweden, September 27, 2018. TT News Agency/Jessica Gow via REUTERS

By Anna Ringstrom

STOCKHOLM (Reuters) - Shares in H&M (HMb.ST) jumped more than 10 percent on Thursday after sales turned the corner in many of its markets as new collections proved popular and the fashion group said it would not need more price cuts to shift unsold clothing.

The stock was up 10.9 percent at 1425 GMT, having lost nearly two thirds of its value from record highs in 2015. Many in the market have bet on the shares falling, meaning any positive news tends to prompt a strong reaction.

The Swedish group has seen profits shrink and inventories pile up in recent years as its core budget chain lost sales to low-price high-street rivals like Primark and online competitors such as ASOS (ASOS.L) and Zalando (ZALG.DE).

In response, the second-biggest clothing retailer after Zara owner Inditex (ITX.MC) has invested heavily in logistics and ecommerce and is reviewing its mix of stores and brands. It is also working on a new store concept and more fashionable ranges.

CEO Karl-Johan Persson said new summer and autumn styles released in the quarter were better received by shoppers than last year, boosting sales in many markets.

"The big explanation is that many customers appreciate the new collections that we have developed," he told Reuters.

"There are positive signals, definitely," he added, noting that online sales spiked 32 percent, outpacing recent figures from ASOS and Zalando.

GRAPHIC: H&M share price gyrates in 2018 - https://reut.rs/2xB4cOn

SUPPLY CHAIN GLITCHES

Teething problems with a new logistics system designed to help improve its supply chain and better integrate stores and its website hit fiscal third-quarter profits.

The glitches led to extra costs and an 8 percent sales drop in the United States, France, Italy and Belgium.

However, sales for its other 66 markets increased by 8 percent in local currencies during the quarter. Analysts at Credit Suisse said that meant comparable sales in those markets may well have been up for the first time in three years.

In September, the start of H&M's fourth quarter, the underlying sales trend was positive, Persson said.

H&M said it did not expect increased discounting in the current quarter thanks to the "quality and balance" of its stock, which Persson said now includes fewer out-of-fashion clothes and more recent ranges and timeless ranges.

H&M's markdowns increased 0.7 percentage points in the third quarter, and inventories rose 15 percent to 38.7 billion crowns.

RBC analyst Richard Chamberlain noted that H&M had not yet started shifting the online platform in its biggest market Germany.

"We still see the risk to consensus estimates as on the downside, however H&M is working its way through some of its issues and has given more reassuring guidance on markdowns for Q4," said Chamberlain, who has a "Neutral" rating on the stock.

Extra costs totaling 400 million crowns related to the logistics problems weighed on profits. Persson told analysts in a call that the problems would affect costs and sales to a lesser extent in the fourth quarter.

June-August pretax profit for shrank 20 percent from a year ago to 4.01 billion crowns ($454 million). Analysts had forecast a 16 percent drop.

British online rival Boohoo (BOOH.L) this week reported forecast-beating profit growth for the first half of the year. Britain's Next (NXT.L) reported better-than-expected trading in late summer.

($1 = 8.8290 Swedish crowns)

(Additonal reporting by Emma Thomasson; Editing by Keith Weir)