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H&M shares slump after Q4 profit margin misses estimates

By Scott Kanowsky -- Shares in H&M Hennes&Mauritz AB B (ST:HMb) dipped to their biggest intraday decline since May after the Swedish retailer posted lower-than-expected fourth quarter profit, following a rise in input costs.

Gross income for the three months to November 30 dipped to SEK 31.01 billion ($1 = SEK 10.30), down from SEK 31.34B in the previous year. Bloomberg consensus estimates had anticipated that the figure would rise to SEK 32.3B.

The decrease translated to a gross margin for the period of 49.7%, which also missed expectations of 52.2%.

In a statement, chief executive officer Helena Helmersson said the fast fashion company was hit by a spike in raw material and freight expenses, as well as a stronger U.S. dollar that resulted in "extensive" increases in the cost of goods purchases.

"On top of this there were increased energy costs as well as a one-time charge for the cost and efficiency programme that was initiated at the end of the year. The combined effect of these factors amounted to a negative impact on profit in the fourth quarter totalling around SEK 5 billion compared with the same quarter last year," Helmersson added.

Despite these pressures, the group's sales grew by 5% in local currencies in the current trading period up to January 25. Excluding Russia, Belarus, and Ukraine - where H&M shuttered its operations following the outbreak of war in 2022 - sales increased by 9%.

Helmersson described the external trading environment as "challenging, but moving in the right direction," saying the company expects to post higher sales and margins in 2023. H&M also backed its guidance of double-digit operating margin in its 2024 financial year.

However, analysts remained disappointed by the results, with Jefferies calling the print "worse than a whisper." The Jefferies analysts argued that the size of the quarterly profit miss means that the firm's optimism over current trading "will likely be lost" within consensus downgrades.

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