Weak sales growth hits H&M results

Hennes & Mauritz AB reported earnings that missed analysts’ estimates as the Swedish fashion retailer was laid low by Europe’s unusually wet and wintry spring.

Second-quarter pre-tax profit fell to 7 billion kronor ($1.09 billion Canadian), H&M said Wednesday, compared with the 7.23 billion-kronor estimate of analysts polled by Bloomberg.

Earnings were also hurt by increased discounting and the strength of the dollar, which H&M said will continue to add to purchasing costs in the third quarter.

Acold, rainy spring has added to the challenges faced by European retailers as consumers curb spending on clothing. H&M’s quarterly sales growth was the weakest in three years.

Still, the weather didn’t stop Zara owner Inditex SA reporting a 6-percent increase in earnings in the three months through April, aided by its fast distribution system. H&M is more sensitive than Inditex to the strong dollar, which raises garment prices in Asia.

The results “resemble a company under pressure,” wrote Simon Bowler, an analyst at Exane BNP Paribas. “We can’t see an end or solution to these headwinds.”

Subpar sales have caused a buildup of inventory, which reached 13.7 per cent of sales, compared with 11.8 per cent a year earlier. Snowfall in Germany — H&M’s largest market — hurt sales in April, according to H&M, which also blamed an early Easter this year for lacklustre growth in March. May sales rose 11 per cent, excluding calendar effects.

“There is little in today’s results to suggest that earnings momentum will become more positive in the near term,” said Jamie Merriman, an analyst at Sanford C. Bernstein.

Sales rose 7 per cent in local currencies the first three weeks of June, H&M said. That was below the consensus of estimates, Merriman said.