H&M flags June sales decline and challenges to margin target, weighing on shares

Investing.com -- Stockholm-listed shares in H&M (ST:HMb) slid in European trading on Thursday after the world's second-largest fast-fashion group announced lower-than-anticipated quarterly income and warned that its sales are expected to fall in June.

Operating profit rose by at 7.1 billion Swedish crowns ($672.5 million) in the second quarter, an increase of 49.8% versus the year-ago period. But the figure was below consensus estimates of 7.37 billion crowns, according to LSEG data cited by Reuters.

Meanwhile, H&M, which has been struggling to entice cost-conscious shoppers during a time of sticky inflation and elevated interest rates, flagged that sales in June would slip by 6% year-on-year in local currencies due to "unstable weather" in many of its largest markets and strong comparative numbers from 2023.

H&M also said the cost of markdowns in relation to sales is seen rising "slightly" in the third quarter.

In a statement, Chief Executive Daniel Ervér noted that while the firm's target for full-year operating margin of 10% remains in place, "the conditions for achieving that level this year have become more challenging" because of "external factors" that have influenced purchasing costs and revenues.

"The situation in the world around us remains uncertain and households continue to have high living costs," Ervér said.

Analysts at UBS said in a note that H&M's "cautious tone" on its margin target is likely being viewed by investors as a potential weight on the group's current-quarter results.

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