H & M Hennes & Mauritz (HM-B.ST) has issued a warning that it will not meet its operating margin target for 2024 due to a decline in profitability during the third quarter. This downturn is attributed to negative currency translation effects and costs associated with winding down operations. The Swedish fashion giant announced this news on Thursday, indicating that its full-year operating margin is expected to drop below the previous estimate of 10%.
Chief Executive Officer Daniel Ervér pointed out that external factors significantly impacted sales revenue and purchasing costs. In positive news, the company anticipates that sales in local currencies will increase by 11% in September. In terms of quarterly performance, H&M reported an attributable profit of 2.32 billion kronor for the three months ending August 31, a decrease from 3.33 billion kronor in the same period the previous year.
Total net sales also fell to 59.01 billion kronor, down from 60.90 billion kronor. Contributing to this decline was a slow start to the quarter, caused by adverse cold weather across several European markets during June. The company's profitability suffered as a result of negative currency impacts, particularly due to the strengthened Swedish krona.
H&M's operating profit decreased to 3.51 billion kronor, compared to 4.74 billion kronor the prior year. Furthermore, the decision to wind down the Afound outlet was a strategic move aimed at deprioritizing activities that offer minimal contributions to long-term sales and profitability. "Despite a challenging start, we are concluding the third quarter with sales on par with last year in local currencies and with good cost control.
We are strengthening the H&M brand by investing in products, the shopping experience, and marketing. These investments are already starting to show positive impacts and will contribute to increased sales and profitability," said Ervér. Analysts from RBC Capital Markets highlighted that H&M has been proactive in enhancing its omnichannel offerings for customers, which is expected to lead to improved relative sales performance.
RBC anticipates that gains in gross margin and cost efficiencies will help the company move closer to its target operating margin of 10%. To further strengthen its financial position, H&M has announced an initiative to repurchase up to 1 billion kronor worth of shares. This move aims to distribute surplus liquidity and reduce capital.
The share buyback will be conducted on Nasdaq Stockholm until November 26, 2024, with plans for the repurchased shares to be canceled at the annual general meeting in 2025. In the stock market, H&M shares fell more than 4% during morning trading hours. The closing price is noted at $173.90, reflecting a change of -$7.4 and a percent change of -4.11%..