H&M shares fall as gross profit falls amid rising costs and weaker sales By Investing.com

Investing.com — Shares of H&M Group (ST: ) fell on Thursday after it reported a drop in gross profit, which fell 2.8% year-over-year to SEK 30,133 million.

Net sales for the quarter were down 3.1% year-on-year to SEK 59,011 million.

At 3:34 am (0734 GMT), H&M Group was trading 7.6 percent lower at SEK 167.6.

Despite this decline, the company managed to improve its gross margin slightly, climbing to 51.1% from 50.9% in the third quarter of 2023.

H&M CEO Daniel Ervér said in a statement that the quarter initially faced challenges due to slow sales in June caused by unseasonably cold weather in many key European markets.

However, operating profit experienced a sharper contraction, falling by 26% to SEK 3,507 million. This contraction led to a lower operating margin of 5.9%, compared to 7.8% in the previous year.

The decrease in profitability was partly influenced by an increase in selling and administrative expenses, which increased by 1% to SEK 26,602 million. In local currencies, these costs rose 4%, putting further pressure on margins.

“We note costs of SEK 550 million in Q3 due to long-term marketing investments and liquidation costs, mainly for Afound, a large part of which is said to be long-term marketing investments,” they analysts at RBC Capital Markets said in a note.

The after-tax result also reflected these challenges, falling to SEK 2,307 million, a significant decrease from SEK 3,319 million in Q3 2023. This led to a decline in earnings per share, which fell to SEK 1.44 from to SEK 2.04 in the same period last year. , marking a 31% decrease.

Cash flow from operating activities also fell to SEK 8,215 million compared to SEK 12,257 million last year.

“Consumer living costs remained high throughout the year, and at the same time we continue to see turbulence in the world around us. External factors affected our sales revenue and acquisition costs more than we expected,” said Ervér.

Meanwhile, the company’s trading inventories increased by 3% to SEK 41,738 million, indicating a higher inventory level.

H&M management remains confident in the composition of this inventory, describing it as “good” for future demand.

The company’s fall collection has been well received, with September 2024 sales expected to rise 11 percent in local currencies compared to the same period last year.

“For Q4, gross margin externalities are expected to be negative and discount cost will increase from the start of last year. Marketing investments continue in Q4, with costs expected to be slightly higher than in Q3,” analysts said.