H&M abandons 2024 margin target as costs hurt profit
H&M scraps goal of 10% operating margin
Quarterly operating profit lags expectations
September sales expected to rise by 11%
H&M shares fall 8%
Adds CEO quotes in paragraphs 12 and 18
By Marie Mannes and Helen Reid
STOCKHOLM, Sept 26 (Reuters) -H&M HMb.ST scrapped its margin target for 2024 as higher discounting, costs and fierce competition hurt operating profit in the third quarter, denting shares in the world's second-biggest listed fashion retailer.
The Swedish retailer had cautioned in June that factors such as material costs made the 2024 target harder to reach, but ditching the goal with no new margin guidance for next year increases the pressure on CEO Daniel Erver to accelerate the turnaround.
H&M said a strong Swedish crown and costs related to shutting down its online fashion outlet Afound hurt profit, and that the cost of markdowns had increased over the quarter.
It has also boosted marketing spending, hiring pop star Charli XCX, for example, for a London Fashion Week party launching its autumn/winter collection, as part of Erver's strategy to elevate the brand.
H&M's operating margin for the first three quarters was 7.4%, with a third-quarter margin of 5.9%. The last year H&M produced a double-digit operating margin was 2017, and Erver said 10% remained a long-term goal.
"The growth rates were widely expected so shouldn't be a huge surprise but the margin weakness will continue to disappoint," said Bernstein analyst William Woods.
Shares in H&M dropped 8% at the open before paring losses to trade down 3.2% by 0940 GMT.
It has struggled to compete against its bigger Spanish rival Zara, owned by Inditex ITX.MC, and cut-price online fast-fashion retailer Shein, amid high inflation and weak consumer demand.
H&M said it would buy back shares worth 1 billion Swedish crowns ($98 million), from Sept. 26 to Nov. 26. The shares have lagged Inditex's over the past years and are down 5% so far this year.
MARKETING BLITZ
Erver defended his plan, saying H&M was "raising the bar" and strengthening its brand by investing in marketing, products, and the shopping experience.
"It is an investment to create excitement around the H&M brand," he told Reuters in an interview. "We will continue this effort throughout the fourth quarter and then we will evaluate and decide how we play it into 2025."
H&M said its autumn collection was very well received and that it expects September sales to rise by 11% in local currencies compared with the same period last year.
The retailer has been on a marketing blitz for the collection, hosting 12 events in eight cities overall, including the London launch, to market the clothes.
H&M, which does not publish granular figures on marketing, said spending in the fourth quarter would be "a little higher" than the third quarter.
"Charli XCX doesn't come cheap," said Woods.
H&M said the cost of markdowns would be "somewhat" higher in the fourth quarter.
"The customer is still very price sensitive," Erver said, adding that the company has to do some "tactical" discounting to attract shoppers.
Its stocks of clothing increased to 17.8% of rolling 12-month sales, up from 17.1% a year ago and 16.3% in the previous quarter, due to transport disruptions caused by insecurity in the Red Sea as well as "more aggressive" buying ahead of the autumn collection, Erver said. He added that H&M was committed to its long term inventory goal of 12-14% of sales.
Operating profit for the third quarter undershot analysts' forecasts, at 3.51 billion Swedish crowns against 4.74 billion a year ago.
Thursday's earnings report was only the second under Erver, a long-time company insider who took the helm in late January after the sudden resignation of his predecessor.
Its results contrasted with Inditex which earlier this month reported a jump in sales of its autumn/winter collection after a sluggish summer, while Britain's Next NXT.L raised its profit forecast on the back of better than expected recent trading.
($1 = 10.1545 Swedish crowns)
Inditex H&M shares https://tmsnrt.rs/3zvVPqA
HM margin chart https://tmsnrt.rs/4gF1lHV
Reporting by Marie Mannes and Helen Reid; Editing by Terje Solsvik, Stephen Coates and Emelia Sithole-Matarise
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Penafian: Entiti XM Group menyediakan perkhidmatan pelaksanaan sahaja dan akses ke Kemudahan Dagangan Atas Talian, yang membolehkan sesorang melihat dan/atau menggunakan kandungan yang ada di dalam atau melalui laman web, tidak bertujuan untuk mengubah atau memperluas, juga tidak mengubah atau mengembangkannya. Akses dan penggunaan tersebut tertakluk kepada: (i) Terma dan Syarat; (ii) Amaran Risiko; dan Penafian Penuh. Oleh itu, kandungan sedemikian disediakan tidak lebih dari sekadar maklumat umum. Terutamanya, perlu diketahui bahawa kandungan Kemudahan Dagangan Atas Talian bukan permintaan, atau tawaran untuk melakukan transaksi dalam pasaran kewangan. Berdagang dalam mana-mana pasaran kewangan melibatkan tahap risiko yang besar terhadap modal anda.
Semua bahan yang diterbitkan di Kemudahan Dagangan Atas Talian kami bertujuan hanya untuk tujuan pendidikan/maklumat dan tidak mengandungi – dan tidak boleh dianggap mengandungi nasihat kewangan, cukai pelaburan atau dagangan dan cadangan, atau rekod harga dagangan kami, atau tawaran, atau permintaan untuk suatu transaksi dalam sebarang instrumen kewangan atau promosi kewangan yang tidak diminta kepada anda.
Sebarang kandungan pihak ketiga serta kandungan yang disediakan oleh XM, seperti pendapat, berita, penyelidikan, analisis, harga, maklumat lain atau pautan ke laman web pihak ketiga yang terdapat dalam laman web ini disediakan berdasarkan "seadanya" sebagai ulasan pasaran umum dan bukanlah nasihat pelaburan. Sesuai dengan apa-apa kandungan yang ditafsir sebagai penyelidikan pelaburan, anda mestilah ambil perhatian dan menerima bahawa kandungan tersebut tidak bertujuan dan tidak sediakan berdasarkan keperluan undang-undang yang direka untuk mempromosikan penyelidikan pelaburan bebas dan oleh itu, ia dianggap sebagai komunikasi pemasaran di bawah peraturan dan undang-undang yang berkaitan. SIla pastikan bahawa anda telah membaca dan memahami Notifikasi mengenai Penyelidikan Pelaburan Bukan Bebas dan Amaran Risiko mengenai maklumat di atas yang boleh diakses di sini.
