H&M's Q3 sales grow at fastest pace in three years

Stockholm

SWEDEN'S H&M, the world's second-biggest fashion retailer, on Monday reported its steepest sales growth in three years in local-currency terms in its third quarter and said its summer collections had been well received.

Sales before currency fluctuations were up 8 per cent in June-August from a year earlier. It was the fifth consecutive quarterly rise, and matched the 8 per cent recorded in the third quarter of 2016.

"Well-received summer collections and increased market share confirm that the H&M group is on the right track with its transformation work," H&M said in a statement.

H&M's shares however fell 2 per cent in early trade.

Analysts at Berenberg, who have a sell recommendation on the shares, said growth matched expectations.

They, however, also said that, given growth of 12 per cent in June, as reported by H&M in late June, it probably slowed to around 6 per cent across July and August.

They also noted that in the year-ago period, sales were disrupted in several key markets due to troubles implementing a new logistics system.

Net sales for the retailer rose more than expected in the third quarter, by 12 per cent to 62.6 billion Swedish crowns (S$8.9 billion). Analysts had on average forecast a rise to 61.9 billion crowns, according to data from Refinitiv.

The stock has soared 51 per cent this year on hopes that H&M is getting back on track after years of falling profits due to slowing sales at its core brand's stores, and investments to adapt to tougher competition and changing shopping habits.

The stock is still trading at a fraction of its 2015 peak, and many analysts remain cautious, awaiting clear signs of recovery. H&M said on Monday that activity levels related to its transformation work had remained high in the third quarter, in an indication investments in physical stores and online will weigh on margins again in the quarter.

"With top-line growth fuelled by investment into price and the omni-channel proposition, we believe investors may be cautious into full Q3 numbers on Oct 3 where we believe leverage may be limited," Berenberg analysts said.

Inditex, the world's biggest fashion retailer, last week reported weaker-than-expected growth in profit margins in the first half of the year.

The disappointing margin growth overshadowed strong growth in sales in the first half for the owner of Zara stores, buoyed by good summer weather in Europe. REUTERS