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H&M's Sales Are Up, But Investors Are Concerned About Profits

H&M's Sales Are Up, But Investors Are Concerned About Profits
H&M, the world's second-largest fashion store, reported a 17 per cent increase in March-May sales, matching its main rival Inditex in citing a comeback in demand as pandemic restrictions relaxed.
However, sales were still lower than before the pandemic began. Investors are also concerned about H&M's profit margins ahead of the company's full quarterly earnings report on June 29.
H&M announced price increases in March to compensate for rising raw material and transportation expenses. Meanwhile, dwindling consumer confidence in Europe and store closures in Russia owing to the Ukraine conflict may encourage price cuts to help move unsold clothing.
H&M had no comment on the sales numbers on Wednesday, and its shares were down 6% by 1000 GMT, bringing the year-to-date slump to 29 per cent.
"Whilst in a less spectacular manner than Inditex last week, H&M also confirms today that the reopening process in Europe has led to strong demand conditions persisting in recent weeks," Jefferies analysts, with a "hold" rating on H&M shares, said in a note to clients.
"Investors will be interested to better understand the extent to which price recovery is offsetting growing input pressures and rebuilding costs," they added.
In its fiscal second quarter, sales increased by 12% year on year to 54.5 billion crowns ($5.4 billion), according to a statement from the Swedish corporation. Refinitiv polled analysts, who projected revenues of 52.8 billion crowns on average.
"Whilst the top line improvement is encouraging, we are mindful that strength in clothing trends over summer could be short-lived as the consumer environment weakens," JPMorgan analysts said in a note.
"We note that Nordics sports retailer XXL profit warned on Q2 yesterday evening, and that this followed a warning last week from online clothing pure-play Boozt, with both citing weakening consumer sentiment," they said.
Inditex, Zara's parent company, posted an 80 percent increase in quarterly profit last week.
"Although H&M has stated previously that external factors on gross margin ... have moved negative now, we see potential for markdown to help to offset this in Q2," RBC analyst Richard Chamberlain, with an 'outperform' rating on H&M's shares, said in a note.
"We see greater risk for Q3 given the need for Russia inventory clearance/reallocation," he said.

Christopher J. Mitchell

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