H&M's blowout sales raise questions about inventory

Geneva

HENNES & MAURITZ AB reported its fastest quarterly sales growth in three years, though analysts said the big question is how much the struggling Swedish retailer cut prices on clothes to clear excess inventory.

Revenue rose 12 per cent to 56.4 billion krona (S$8.5 billion) in the three months to November, according to a statement Monday. Analysts expected sales of 56.1 billion krona. The figures exclude value-added tax.

While the gain may make bulls more optimistic that H&M is reducing its record inventory position, investors may react coolly after a recent rebound in the stock.

H&M also had a very easy quarterly comparative. It may be hard to raise prices in December after offering such big discounts in November, Richard Chamberlain, an analyst at RBC Capital Markets said.

It won't be clear until full results are published on Jan 31 as to what effect the sales spurt had on earnings. It's possible a lot of the sales growth wasn't very profitable: H&M has recently been selling sweaters for as little as US$9.99.

Favourable currency shifts supplied half of the growth; excluding foreign-exchange movements, sales grew 6 per cent in the quarter. Rival Inditex SA faces a currency headwind, which crimped revenue in its most recently reported quarter.

The stock fell as much as 2.9 per cent in early trading. H&M had gained 27 per cent in the three-month run-up before the results as sentiment towards the embattled retailer shifted. The shares have been buoyed by share purchases by Chairman Stefan Persson and Ikea's investment company Interogo Holding. BLOOMBERG