The logo of Swedish clothing retailer H&M hangs above a store in Berlin, Germany, on March 28, 2018.
Sean Gallup | Getty Images News | Getty Images
H&M, the world’s second largest listed fashion retailer, reported that its operating profit fell short of expectations and gave up its profit margin target. The company’s stock price plummeted 8% on Thursday.
Swedish clothing retailer report The group’s third-quarter operating profit was SEK 3.51 billion ($345.8 million), compared with SEK 4.74 billion a year ago. Reuters reported that analysts surveyed by LSEG expected operating profit to be US$4.93 billion.
H&M lowered its profit margin target for 2024 after warning earlier this year that the situation would be more challenging.
The move is thought to be likely to increase pressure on Chief Executive Daniel Ervér, who has been in the job for just eight months. Ervér takes over from Helena Helmersson in late January promised “Creating unparalleled value and profitable growth for our customers.”
H&M has struggled to improve profitability in recent months as cooler weather, higher living costs and a post-pandemic slowdown in spending have hampered high street and luxury retail sales.
The retailer also faces stiff competition from the likes of Zara owner Inditex and fast-fashion retailer Shein.
“External factors have had a greater impact on our sales revenue and purchasing costs than we expected. We currently estimate that our operating profit margin will be below 10% this year,” H&M’s Ervér said in a written statement.
“We believe our plans will help increase sales and profitability,” he added.
H&M shares fell after the news broke, falling 4% around 9:40 a.m. London time. The Stockholm-listed company was one of the worst performers in early trading on the pan-European Stoxx 600.
UBS analysts said in a research report that some of the most noteworthy areas of H&M’s performance include a surge in sales in local currencies, the company’s increased cost of price reductions and the retailer’s plan to reduce the number of net stores.
H&M said that sales-related price reduction costs are expected to “increase” in the fourth quarter.
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