The worlds second-largest clothing retailer – H&M Hennes & Mauritz AB reported today that third-quarter profitability fell further and warned that higher garment costs will drag on margins through the end of the year. The company reported quarterly profit in line with expectations but unusually warm weather held back customers from renewing their autumn wardrobes, weighing on Septembers sales growth.
“September was a little lower than we had planned because some products havent sold due to the warm weather,” Chief Executive Karl-Johan Persson told a news conference, which was cited by Reuters. However, the clothing retailer said the impact of weather is usually short-lived as fluctuations in temperatures and conditions tend to iron out over the year.
H&M reported that net profit rose by 19% to SEK5.29 billion ($740.0 million) in the three months through August, from SEK4.43 billion a year earlier, on a 21% rise in revenue to SEK38.81 billion. Analysts had projected a net income of SEK5.27 billion.
However, the retailers gross margin, a key gauge of performance, shrunk to 58.3% in the third quarter from 58.8% a year ago. The company said that higher garment costs will weigh on margins through the rest of the year, adding to pressure by fierce competition in the face of smaller retailers such as Primark.
The company is off to a slow start of the fourth fiscal quarter as sales over the first 23 days of September 2014 increased by 7%, compared to an annualized 19% jump in August which benefited its third-quarter profit.
H&M Hennes & Mauritz AB lost 3.79% to trade at SEK301.70 per share at 13:10 GMT, marking a one year change of +14.32%. The company is valued at SEK458.07 billion. According to the Financial Times, the 28 analysts offering 12-month price targets for H&M Hennes & Mauritz AB have a median target of SEK319.00, with a high estimate of SEK400.00 and a low estimate of SEK185.00. The median estimate represents a 1.72% increase from the previous close of SEK313.60.
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