H&M, the world’s second-largest fashion retailer, saw its shares tumble by 8% on Thursday following a disappointing third-quarter operating profit and the abandonment of its 2024 earnings margin target.
The Swedish retailer posted an operating profit of 3.51 billion Swedish crowns ($345.8 million), down from 4.74 billion crowns in the same period last year, falling short of analysts’ expectations of 4.93 billion crowns.
The decline in profits and a lowered margin outlook highlight the tough retail environment the company is navigating, worsened by macroeconomic challenges and heightened competition.
H&M’s Q3 operating profit plunges
The drop in H&M’s operating profit is concerning for investors, especially as the company faces increased pressure to boost profitability amidst cooling consumer spending.
For the third quarter, H&M reported a profit of 3.51 billion Swedish crowns ($345.8 million), a sharp fall from last year’s 4.74 billion crowns.
Analysts had anticipated better results, with a consensus forecast of 4.93 billion crowns. The retailer cited external factors, such as rising living costs and changing consumer behavior, as key reasons for this shortfall.
H&M had previously set a goal for an earnings margin target for 2024, but worsening conditions have forced the company to abandon this target.
The company’s decision reflects the challenging economic environment, characterized by sluggish post-pandemic spending, cooler weather, and increasing competition from rivals like Inditex and Shein. CEO Daniel Ervér acknowledged the impact of these external factors, hinting that 2024 may see even more financial hurdles ahead for the retailer.
What led to H&M’s weak performance?
The retailer’s failure to meet its earnings forecast was due in large part to external pressures, including rising costs and weaker demand.
Analysts at UBS pointed to increased markdown costs, which are expected to rise in the fourth quarter.
H&M’s sales, particularly in local currencies, also saw slower-than-expected growth, which led to a reduced earnings outlook for the remainder of the year.
UBS analysts further noted that H&M is planning to reduce its overall store count to streamline operations and cut expenses.
H&M’s struggles have been exacerbated by the rise of competitors such as Inditex, the owner of Zara, and fast-fashion giant Shein.
Both brands have managed to capture a significant share of the market, placing further pressure on H&M’s performance.
H&M’s CEO, Daniel Ervér, has emphasized the company’s commitment to achieving “profitable growth,” but it remains to be seen if the retailer can regain its footing in a crowded and competitive market.
H&M’s stock price
Following the disappointing third-quarter results, H&M’s stock fell sharply, down 8% in early trading on Thursday.
The company’s Stockholm-listed shares were among the worst performers on the pan-European Stoxx 600 index.
Investors are wary of the challenges H&M faces as it attempts to navigate both macroeconomic pressures and growing competition.
The stock’s poor performance reflects broader concerns about the retailer’s ability to meet its targets moving forward.
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