H&M Questions Full-Year Profit Target After Quarterly Miss

H&M cast doubt on its full-year profit margin target after missing quarterly earnings forecasts and predicting a decline in June sales. This announcement led to a sharp drop in the company's shares, falling as much as 15%.

The Swedish company reported that sales in June are expected to fall by 6% in local currencies compared to the same period last year, citing poor weather in many markets as a contributing factor. Despite this setback, Daniel Erver, CEO, H&M affirmed the company’s commitment to its 10% operating margin goal for 2024 but acknowledged that reaching this target has become more challenging.

“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,” Erver said. To achieve the margin target, the company will need stronger sales growth in the remaining two quarters, which it plans to pursue by offering more discounts.

In June, H&M reduced the number of discounts offered, which Erver noted as a positive sign for long-term strategy but recognized it had a negative short-term impact on sales.

H&M has faced ongoing competition from Inditex, the owner of Zara, and the rapidly expanding China-based Shein, which plans a London stock market listing. The Swedish group has been squeezed between Shein's low prices and Inditex's higher-end fashions targeting upmarket customers. This dynamic has hindered H&M's ability to raise prices, as its cost-conscious customers have been reluctant to spend amidst rising inflation.