H&M shares drop amid "flattish" third-quarter sales

September 15, 2023 8:41 AM EDT -- H&M (ST:HMb) (OTC: HNNMY) stock dropped by more than 4% on Friday after the world's second-biggest fashion retailer reported flat sales in its most recent quarter, lagging expectations as the fashion firm struggles to attract customers while the cost of living crisis drags on.

This comes as a real disappointment after it had reported strong second-quarter numbers as cost-cutting measures started to bear fruit and its summer collection benefited from warmer weather in Europe.

Net sales increased by 6% to 60.9 billion Swedish crowns, below estimates of SEK 63.5B. In local currencies, sales growth was "flattish" on an annual basis during the June to August period, missing analysts' forecasts of 5% cited by Reuters.

The owner of brands like Arket, Cos and Monki said that its efforts to reach a 10% operating margin in 2024 were heading in "the right direction," adding that it has also placed an emphasis on profitability during the third quarter.

H&M has attempted to boost its profit margins through higher pricing, according to analysts quoted by Reuters. However, this strategy has not yet proven to be as successful as a similar drive by archrival Inditex (BME:ITX), which reported a sharp jump in half-year net profit earlier this week.

"Absent further clarification from the company on the extent of measures taken in [third quarter] to protect profitability, we would expect consensus [earnings before interest and taxes] estimates to move down," analysts at Morgan Stanley said in a note.

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