H&M breathes a sigh of relief as drop in sales proves smaller than feared

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Budget clothing retailer Hennes & Mauritz posted a smaller than expected drop in like-for-like November sales, easing fears of large markdowns to reduce unsold stock.

The company said that local-currency sales at stores open a year or more (like-for-like sales)shrank one per cent in the last month of its fiscal year.

This performance beat analysts’ forecast for a three per cent drop.

That was the second consecutive monthly drop and comes after a five per cent dip in the previous month, October.

Citi analyst Richard Evans said a weak euro and likely product investments will probably limit H&M’s earnings growth in 2013 to mid-single digits.

He repeated a neutral stance on H&M’s shares.

Total sales in November, including new stores, were up seven per cent from a year earlier in local currencies.

This was just above forecasts.

The group is on course for a total year rise in sales of around 11 per cent.

“Sales are marginally better than we expected, but probably at a cost to margin,” said Credit Suisse analyst Simon Irwin.

He said that H&M had probably been cutting prices in promotions to get rid of stock in Novem- ber.

He stuck to forecasts for full-year 2013 like-for-like local currency sales growth of two per cent.

He is also predicting total sales growth of 10.4 per cent.

Turnover in the September-November quarter, which H&M published ahead of the full-year earnings report which is due out on January 30, rose five per cent from a year earlier, matching expectations.

H&M is lagging forecast growth at larger rival Inditex, which is less exposed to the downturn in Europe.

Inditex, which owns high fashion chain Zara and a number of other chains, has a larger share of sales than H&M in faster-growing emerging markets and is less exposed to cost inflation in Asia.

Shares in Inditex, which H&M trails by value and turnover as well as by the number of markets and stores, have soared 66 per cent so far this year.