H&M Group Shares Plummet as Profit Margins Shrink – What This Means for Investors
Investing.com – Shares of H&M Group (ST:) nosedived on Thursday following the release of their quarterly financial results, which painted a bleak picture of declining profitability. Gross profit dropped by 2.8% year-on-year to SEK 30,133 million, while net sales for the quarter fell by 3.1% to SEK 59,011 million. By 3:34 am (0734 GMT), H&M Group’s stock was trading 7.6% lower at SEK 167.6.
Despite the overall decline, the company did manage a slight improvement in its gross margin, which increased to 51.1% from 50.9% in the third quarter of 2023.
Key Financial Metrics:
- Gross Profit: Down 2.8% to SEK 30,133 million
- Net Sales: Down 3.1% to SEK 59,011 million
- Operating Profit: Down 26% to SEK 3,507 million
- Operating Margin: Declined to 5.9% from 7.8%
- Selling and Administrative Expenses: Up 1% to SEK 26,602 million
- Result After Tax: Down to SEK 2,307 million from SEK 3,319 million
- Earnings Per Share: Dropped to SEK 1.44 from SEK 2.04
- Cash Flow from Operating Activities: Fell to SEK 8,215 million from SEK 12,257 million
According to CEO Daniel Ervér, the quarter faced initial challenges due to sluggish sales in June, driven by unseasonably cold weather in key European markets. This adverse weather, coupled with increased selling and administrative expenses, put significant pressure on the company's profitability.
RBC Capital Markets analysts noted that the company incurred SEK550 million in costs during Q3, primarily due to long-term marketing investments and winding down costs for Afound. A substantial portion of these expenses were associated with long-term marketing investments.
Investor Insights:
- The result after tax saw a steep decline to SEK 2,307 million, down from SEK 3,319 million, leading to a 31% decrease in earnings per share.
- Cash flow from operating activities weakened significantly, dropping to SEK 8,215 million from SEK 12,257 million.
- The company’s stock-in-trade increased by 3% to SEK 41,738 million, indicating a higher inventory level.
CEO Daniel Ervér highlighted the impact of high living costs and global turbulence on the company's financial performance. These external factors have affected both sales revenue and purchasing costs more than anticipated.
Despite the current challenges, H&M management remains optimistic about the future. The autumn collection has been well received, and the company expects a 11% growth in September 2024 sales in local currencies compared to the same period last year.
However, analysts caution that external factors will continue to negatively impact gross margins in Q4. They also anticipate an increase in markdown costs year-on-year, with continued investments in marketing expected to drive costs slightly higher than in Q3.
Simple Breakdown for All:
- What's Happening? H&M's financial performance took a hit, with profits and sales both declining.
- Why Did This Happen? Poor weather affected sales, and increased marketing and administrative costs put pressure on profits.
- Key Numbers:
- Gross Profit: Down 2.8%
- Net Sales: Down 3.1%
- Operating Profit: Down 26%
- Earnings Per Share: Down 31%
- What Does This Mean for You? If you hold H&M shares, the value of your investment might decrease. If you're considering buying, be aware of the current challenges the company faces.
- Future Outlook: H&M expects better sales in the coming months, but external factors like high living costs and global uncertainty could continue to pose challenges.
In essence, H&M's recent financial results suggest a tough quarter with significant declines in key metrics. Investors should keep a close eye on how the company navigates these ongoing challenges and positions itself for future growth.