H&M Shares Plummet 14% After Missing Earnings Forecast and Predicting Sales Decline

H&M's shares fell nearly 14% on June 27 after the company missed quarterly earnings forecasts and projected a 6% sales decline for June. CEO Daniel Erver emphasized the challenges of achieving the 2024 operating margin target amid unfavorable market conditions and external factors.

H&M Shares Drop 14% After Missing Earnings Forecast and Predicting June Sales Decline

H&M's shares plunged nearly 14% on June 27 after the company missed quarterly earnings forecasts and predicted a decline in June sales. The company's full-year profit margin target was also called into question.

According to Reuters, the Swedish company expects sales to decrease by 6% in local currencies this month compared to the previous year, partly due to unfavorable weather conditions in numerous markets.

According to CEO Daniel Erver, the organization remains committed to its 20% operating margin objective for 2024; however, achieving it has become increasingly challenging.

"External factors that influence our purchasing costs and sales revenues, including materials and foreign currency, will have a more negative impact than we expected in the second half," he said.

"The most important prerequisite for achieving our goal is that sales growth is further strengthened in the second half of the year compared with the second quarter increase," he added.

Inditex, the owner of Zara, has frequently outperformed H&M. Meanwhile, Shein, a fast-fashion group founded in China, is swiftly expanding in Europe and is preparing to list on the London stock market.

At the market's opening, the group's shares declined nearly 14%. JPMorgan expressed disappointment with the report and anticipated an adverse share reaction.

"We....indeed think that the June sales and margin commentary could weigh on the wider sector," the broker said.

H&M Struggles to Rebuild Customer Base as Inflation Hits Spending Power, Despite Sales Growth

The Swedish group needs help regaining its customer base. Its core of cost-conscious consumers has been hesitant to spend due to inflation, which has diminished their purchasing power.

H&M reported that net sales in the second quarter of March-May increased by 3% in local currencies compared to the previous year. The company observed growth in all customer categories and a positive trend in all regions.

Operating profit increased from 4.74 billion to 7.1 billion Swedish crowns ($672.5 million) in the previous year, but it fell short of the average forecast of 7.37 billion in an LSEG poll of analysts.

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