STOCKHOLM • Hennes & Mauritz (H&M) is reeling from discounts that are eroding sales as the struggling Swedish clothing retailer tries to reduce a record level of inventory.
Sales were unchanged in local currencies, including value-added tax in the three months through May, the Stockholm-based company said in a statement yesterday. Revenue excluding tax rose 1.2 per cent to 51.9 billion kronor (S$8 billion), missing the average analyst estimate. The stock fell as much as 4.1 per cent in early trading.
"It's worrying," said Mr Magnus Raman, an analyst at Handelsbanken who estimates like-for-like sales for the past 12 months have dropped 6.8 per cent, making it harder to invest in improving the business. "The consensus estimate was already at very low levels and still the company doesn't manage to meet them."
H&M's report comes three days after Zara parent Inditex reported weaker-than-expected sales in its first quarter.
European clothing retailers had suffered from unusually cold weather in the first months of this year. Brick-and-mortar shops have also been facing increasing competition from online sales as consumers become more comfortable receiving clothes in the mail and returning them if they don't fit.
H&M has struggled to keep up with its competitors after fashion mistakes and delivery hiccups made customers turn elsewhere. The company reported a record level of inventory exceeding US$4 billion (S$5.4 billion) at the end of the first quarter despite increasing markdowns.
The stock has attracted short-sellers, who have bet against almost 15 per cent of its shares, according to Markit Securities. Short-sellers borrow a stock and sell it, hoping to buy it back at a lower price and pocket the difference.
H&M's inventory exceeded this figure at the end of the first quarter, despite increasing markdowns.
While H&M is still adding stores, it is slowing expansion. The retailer had 4,801 stores at of the end of last month, about 1 per cent more than at the end of the last fiscal year. H&M's target is 220 net additions this year, based on plans to shut 170 stores and add 390. The company is also starting new chains, including Afound discount shops and Arket, which sells clothes and houseware such as vases and cutlery.
The stock fell 2.7 per cent on Thursday after Swedish news website Breakit reported that H&M chairman Stefan Persson said speculation that he is planning to take the fashion retailer private is "baseless".