Market Analysis

H&M, the world's second-largest publicly listed fashion retailer, announced on Thursday that it no longer anticipates achieving its full-year earnings margin target. The company also reported a lower-than-expected operating profit for the June-August period.

H&M (ST) has faced challenges in improving profitability due to high inflation and intense competition, particularly from its larger Spanish rival Zara, owned by Inditex (BME), as well as the rapid expansion of low-cost online fashion retailer Shein.

"We currently estimate that this year's operating margin will fall below 10%," Chief Executive Daniel Erver said in a statement.

For the first three quarters, the accumulated margin was 7.4%.

H&M had previously warned in June that the 2024 target was becoming more difficult to achieve due to factors like rising material costs and foreign exchange rates. The company's full-year operating margins for 2022 and 2023 were 3.2% and 6.2%, respectively.

In the fiscal third quarter, H&M posted an operating profit of 3.51 billion Swedish crowns ($346 million), down from 4.74 billion a year earlier, and well below the 4.93 billion expected by analysts in an LSEG poll.

Despite the challenges, H&M noted that its autumn collection has been well-received, with September sales projected to increase by 11% in local currencies compared to the same period last year.

Inditex had previously reported a rise in sales for its autumn and winter collections following a slow summer hampered by unfavorable weather, while UK-based retailer Next also raised its profit forecast after stronger-than-expected trading.

This marks only the second earnings report under the leadership of Erver, a long-time H&M insider who took over as CEO in January following the unexpected resignation of his predecessor.

Year-to-date, H&M shares have risen 2.7%, underperforming Inditex, which has seen a 33% increase.

Paraphrasing text from "Reuters" all rights reserved by the original author.