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H&M sales rise for fifth straight quarter
[STOCKHOLM] Hennes & Mauritz AB revenue figures showed a slowdown in the April and May, stymieing the Swedish clothing retailer's attempts to reduce a buildup of inventory that's been weighing on earnings.
Stock-in-trade probably increased 4 per cent in local currencies at the end of May, wrote Fredrik Ivarsson, an analyst at Kepler Cheuvreux. He estimates earnings were flat in the period. Despite the slowdown, sales topped analysts' consensus estimates as compiled by Bloomberg.
Clothing retail has been a difficult market lately, with Inditex SA reporting weak sales recently due to rainy and cold weather and Gap Inc. suffering a 10 per cent drop in revenue at its namesake chain. H&M, which had pledged to reduce discounts, said turnaround initiatives are starting to work, though challenges remain. The biggest of those is that stock-in-trade is standing near the equivalent of a fifth of total revenue.
"We expect inventories to remain high at the end of the second quarter," wrote Richard Chamberlain, an analyst at RBC Europe. He added that H&M faces a risk that customers may start to expect discounts the longer stock-in-trade builds up.
The stock fell 1.8 per cent as of 9:53 a.m. in Stockholm, having earlier dropped as much as 3.1 per cent.
H&M is scheduled to report earnings on June 27 for its second quarter, which ran through May. Analysts expect a 3 per cent increase in operating profit, which would be the first gain in two years.
Sales rose 6 per cent in local currencies in the period, which means growth probably slowed down to 5.5 per cent in April and May, according to Kepler's Ivarsson. H&M previously said March sales rose 7 per cent.