store of Swedish clothing company "H&M" (Hennes & Mauritz) in the city center of Bremen, northern Germany, 15 January 2018. H&M has apologized after a widespread outcry over a promotional image that many have called racist.HM apologized after a widespread outcry over a promotional image, Bremen, Germany - 15 Jan 2018

Hennes & Mauritz beat expectations with a 9 percent rise in third quarter sales, lifted by currency rates, as it touted market share gains over the period.

Sales in the three months ended Aug. 31 totaled 64.8 billion Swedish kronor, or $7.16 billion, up 4 percent in local currencies, with the company flagging its transitional efforts as contributing to the improved performance.

The patch of bright news from the Swedish fast-fashion retailer prompted a buying spree from investors, and shares traded up 14 percent in afternoon trading to 140.66 Swedish kronor.

H&M has in recent months embarked on a broad overhaul, bulking up logistics networks and investing in digital means in order to catch up, after rivals sped ahead while it struggled under the weight of unsold inventory. The new logistics system will speed up the efficiency of the supply chain, H&M said.

It wasn’t all good news, as the company pointed to sales and cost issues relating to the implementation of the new logistics system in a number of markets, including the U.S., France, Italy and Belgium.

“On the positive side, this means organic growth excluding one-off impacts could have been meaningfully stronger than expectations,” Barclays said in a note to clients.

The analysts added the company’s efforts “make sense” in the longer term, but that there could be further road bumps in the medium term. Barclays cautioned that the sales and cost issues related to rolling out the new logistics system could prompt a lowering of consensus profit expectations.

Analysts at RBC Capital Markets said the issues could be related to an inventory backlog at a distribution center in New Jersey that could continue into the next quarter. New products are likely performing better and sales on Tmall in China were likely good, RBC added.

The analysts applauded H&M’s long-term investments while lowering entry prices, but warned this could lead to pressure on margins.

“Although the company is taking steps to address some of its areas of recent under-performance, we expect any recovery to be more gradual than the market anticipates,” added RBC, citing sourcing cost headwinds gathering next year.

H&M reports third-quarter results on Sept. 27.

load comments
blog comments powered by Disqus