PARIS — Hennes & Mauritz AB reported sales in local currencies rose 10 percent in October — a significant uptick for a retailer that had seen growth falter earlier in the fall.
After posting year-on-year growth of 10 percent in July and 7 percent in August, the Swedish fast fashion group saw growth slow to 1 percent in September, with chief executive officer Karl-Johan Persson blaming unseasonably mild weather.
Shares in H&M have fallen 20.9 percent over the past year as the firm pushes forward with an expansion plan in the face of cost-boosting currency headwinds.
The high-street retailer counts 4,269 stores in 64 markets — up 312 locations or 8.9 percent over October 2015 — and is aiming for a target of 425 new stores in 2016. Last week H&M added Vietnam and Georgia to the list of new countries where it would open stores in 2017, alongside Colombia, Iceland and Kazakhstan.
But the group’s expansion has been offset by currency pressures and narrowing margins that drag down profits and investor appetite.
Increased costs due to a strong U.S. dollar contributed to a 17 percent drop in pre-tax profits during the first nine months of the year, the group reported Sept. 30.
The contracts for much of H&M’s sourcing by Asian producers is denominated in U.S. dollars — a point of contrast with the local production strategy of the group’s bigger fast-fashion rival, Inditex.
In a report Monday, analysts at Barclay Equity Research assigned a hold rating to H&M, suggesting that a continued sell-off would be unjustified.
H&M “has an excellent long term track record with 13% revenue growth and 13% EBIT growth over the last 18 years,” Barclays reported. The bank considers H&M, along with fast-fashion players Inditex and Primark, to have “excellent long term growth potential with substantial amounts of white space globally.”
Barclays accentuated good growth potential for H&M group’s secondary brands, which include Cheap Monday, & Other Stories, and Cos.
It forecasts 11 percent organic growth overall during the next 5 years, with 9 percent coming from opening new spaces and 2 percent from like-for-like growth.
Narrowing margins were called out as the primary concern for H&M.
“The group put through price cuts or raised the quality at similar price levels since 2010 to retain its competitive position,” the report said. This initiative has coincided with a push for sustainability and was then followed by rising cotton prices and the collapse of the euro versus the U.S. dollar.
H&M’s 10 percent pace in October bested Barclay’s forecast of 9 percent growth and is consistent with its projection of 7 percent growth year-over-year for the fourth quarter. The company is due to report those results on Dec. 15.