H&M slumps on doubts over margin target and June sale drop

By Marie Mannes

STOCKHOLM (Reuters) -H&M cast doubt over its full-year profit margin target on Thursday after missing quarterly earnings forecasts and predicting a fall in June sales, sending shares in the world's No.2 listed fashion retailer down as much as 15%.

Sales this month are likely to fall 6% in local currencies versus a year earlier, partly due to poor weather in many markets, the Swedish company said.

CEO Daniel Erver said H&M still stood by its 10% operating margin goal for 2024, but that it had got harder to reach.

"External factors that influence our purchasing costs and sales revenues, including materials and foreign currency, will have a more negative impact than we expected in the second half," he said.

The group said it would need stronger sales growth in the two remaining quarters to hit the margin target, which it aims to achieve by offering more discounts.

H&M offered fewer discounts in June, which was a positive sign for the long run but had a negative impact for the month, Erver told analysts and reporters.

H&M has often fallen short of Zara owner Inditex, while China-founded fast-fashion group Shein is expanding rapidly in Europe and plans a London stock market listing.

The Swedish group has been squeezed between the rock-bottom prices of Shein and Inditex's higher-end fashions aimed at more upmarket customers.

That has left it struggling to raise prices, with its core of cost-conscious shoppers reluctant to spend as inflation ate into purchasing power.

Analysts are likely to cut their full-year estimates for H&M's earnings per share by 1-2% based on Thursday's update, brokers DNB Markets said in a note to clients.

H&M shares fell as much as 15% and were down 11.7 at 1210 GMT, on track for their biggest single-day drop since 2001 and the worst performance in the pan-European STOXX 600 index.

The stock is up 9% in the last 12 months, significantly lagging Inditex's 35% rise.

In an interview, Erver told Reuters he expected the third quarter to pick up from a poor June as the weather has improved.

Both spring and summer collections had been received well, he added.

"We nailed the sweet spot on combining ... different components, and we see the customer response has been tremendous. We are more confident about the rest of the quarter than what we have seen in the first month," Erver said.

H&M's net sales in March-May, the second quarter of its fiscal year, rose 3% in local currencies versus a year earlier.

Operating profit was 7.1 billion Swedish crowns ($672.5 million), up from 4.74 billion a year earlier but below a mean forecast of 7.37 billion in an LSEG poll of analysts.

($1 = 10.5564 Swedish crowns)

(Reporting by Marie Mannes; Editing by Terje Solsvik and Mark Potter)