H&M in a tough spot: stock plummets following worst quarterly sales in a decade

The world’s second largest apparel group is in trouble: Hennes & Mauritz AB shares plummeted after the Swedish fashion retailer lost more market share to rival Zara, noting the worst quarterly sales in ten years.

The Swedish group reported Friday the biggest drop in quarterly sales in at least a decade. H&M has seen its sales badly affected by consumers’ growing inclination towards a more online focused model. As a result, the fast fashion giant will start paring its store network expansion down, considering several closures in the upcoming months.

The news rapidly affected the stock’s performance: shares in H&M fell as much as 16 percent Friday, marking the steepest intraday decline since March 2001, according to data collated by Bloomberg.

Furthermore, note analysts covering the stock, H&M is attracting short selling. Almost 15 percent of H&M’s shares that are readily available to trade (free float) has been shorted, according to Markit Securities data, reports the ‘Wall Street Journal’.

Analysts’ take: H&M reported “quite possibly the worst quarterly sales performance on record”

In Cedric Lecasble’s words, H&M reported “quite possibly the worst quarterly sales performance on record.” The analyst at Raymond James based its commentary on the fact that Hennes & Mauritz’s sales excluding value-added tax fell 4 percent to 50.4 billion kronor (6 billion dollars) in the three months through November. This was not even remotely close to the 2 percent increase expected by analysts.

Indeed, H&M’s sales have declined in only three quarters in the past 10 years, according to data compiled by Bloomberg.

'It looks like H&M's product offer has been very sub-optimal this season for what is now a more globally diversified company, and this will need to be addressed for investors to regain faith in H&M longer term,” pointed out RBC analyst Richard Chamberlain. Chamberlain currently rates the stock as an 'outperform'.

H&M to ramp up online presence in an eleventh hour attempt to revert its fate

In an attempt to calm the (much troubled) waters, the Swedish retailer said Friday it aims to accelerate a transformation plan to better integrate physical and digital stores, and it will give more details on strategy changes at a February, 14 meeting with investors.

Until then, H&M would be increasing its efforts to integrate physical and online stores; even allowing online purchases to be returned to shops in some countries. It will also review its physical stores expansion plans, closing the worse performing ones.

H&M blamed a drop in customer numbers in its stores because of online shopping, as well as “imbalances in part of the H&M brand’s assortment composition”, highlighted the ‘Financial Times’.

“H&M’s supply chain lacks reactivity, which is one of the group’s structural issues in front of abrupt changes in fashion,” wrote in a note to investors Cedric Rossi, an analyst at Bryan Garnier.

H&M’s future looks multi-branded: bigger focus on smaller, better performing brands

On a more positive note, the group said online sales and revenue of brands other than H&M have been going well. Aware of this incipient shift in revenue’s contributions, the company is shaking its management team, having recently named Madeleine Persson Managing Director for the group’s flagship brand.

“The H&M group has a multi-brand matrix organisation with currently eight well-defined brands: H&M, COS, & Other Stories, Monki, Weekday, Cheap Monday, H&M Home and ARKET. Each brand is headed by a responsible individual and has local sales organisations. Centrally, there are a number of joint group functions that support each brand in order to enjoy the advantages of these common areas, so that each brand and country works purposefully according to central policies and guidelines,” explains the company in its corporate site.

Photo: H&M Global Web