Weather exposes holes in H&M, Next clothing order chains

September 15, 2016 9:42 AM EDT

Mannequins are pictured in the window of a Next clothing store in London, Britain, March 26, 2009. REUTERS/Luke MacGregor/File Photo


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By Anna Ringstrom and Kate Holton

STOCKHOLM/LONDON (Reuters) - European fashion retailers blamed the weather for below-forecast figures on Thursday as Hennes & Mauritz sales were hit by a hot second half of August and Britain's Next (NYSE: NXT) discounted stock in July after a warm winter and cold spring.

Shares in the companies fell on the figures, underlining the challenge faced by retailers which source most of their clothing from Asia months before it hits the shelves, making it hard to respond to unpredictable weather and fast-moving fashion trends.

Zara-owner Inditex , by contrast, copes better because it can whisk the latest trends from runway to stores in a matter of days from its factories in Europe. The Spanish company, whose shares were unchanged following its rival's figures, is due to report its half-year results on Sept. 21.

Next shares were down 4 percent at 1324 GMT and H&M also slipped 4 percent, dragging Britain's Marks and Spencer (NYSE: MKS), which fell 2.4 percent, and German online fashion retailer Zalando , down 1.4 percent.

H&M, the world's second-biggest clothing retailer after

Inditex, said local-currency sales in August rose 7 percent, missing average analyst forecasts of 13 percent.

The Swedish firm, which makes most of its sales in Europe, said the month got off to a strong start but sales were hit in the second half of August by hot weather in most of its markets.

Societe Generale analyst Anne Critchlow estimated H&M's comparable sales shrank 2 percent in the month and predicted a continued decline in its operating profit margin.

"Weather was certainly unhelpful across northern Europe, being too warm for the launch of the transitional autumn/winter ranges at full price and this has continued into September," Critchlow said.

The overall clothing market in Germany, H&M's single-biggest market, was down 3 percent in August, according to Textilwirtschaft industry data.

H&M said net sales in the last three months totaled 49 billion crowns ($5.8 billion), up from 46 billion in the same period a year ago but below a forecast 50 billion. It reports full third-quarter results on Sept. 30.

'CHALLENGING AND VOLATILE'

Meanwhile, Next posted a 1.5 percent fall in first-half profit after sales from full-priced goods fell by 0.3 percent, saying trading since July had been challenging and volatile.

Next said it had 30 percent more stock for its summer sale in July than a year ago, after it reported a dramatic fall in demand for clothing and footwear following an unusually warm winter and cold spring.

It said this might lessen later in the year, especially if there is a cold winter.

Next retained its wide full-year guidance for full-price sales to either grow or contract by 2.5 percent and said it expected to have a clearer picture of trading conditions at the beginning of November when it reports its third-quarter sales.

"We will hopefully have a bit of cold weather then and we'll be able to see the reaction to our winter ranges because at the moment it's impossible to read because no one is buying winter ranges," Chief Executive Simon Wolfson told Reuters.

Bernstein analyst Jamie Merriman noted that Next was aiming to increase the proportion of garments ordered with a short lead time to 15 percent in winter, from 10 percent in autumn and only 4 percent in the spring/summer season.

However, she is still concerned, predicting rising input prices after Britain's vote to leave the European Union hit sterling as well as potential pressure on disposable incomes.

Next's Wolfson, who backed Brexit, said consumers did not appear to be affected by the referendum but said retail sales would remain sluggish while real earnings struggled to grow.

Meanwhile, department store chain John Lewis said it did not expect Brexit to hit its sales in the second half after a 4.5 percent rise in the first, including a 2.8 percent increase in fashion sales.

(Writing by Emma Thomasson and Kate Holton; Editing by Alexander Smith)



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