H&M shares tumble over profitability concerns

H&M posted its best second quarter results in years but its shares slumped after it warned hitting its profit target would get harder going forward. Photo: Gabriel BOUYS / AFP/File
Source: AFP

Shares in H&M slid Thursday after the world's second biggest fashion retailer warned that the conditions to meet its profitability target for this year have become "more challenging".

H&M's stock price was down 13 percent at 170 kronor ($16) at around midday on the Stockholm stock exchange.

The Swedish group posted a 52-percent jump in net profit to five billion Swedish kronor ($473 million) in the second quarter as it pressed on with efforts to control costs.

Chief executive Daniel Erver said the company had achieved its "best profit and cash flow for many years" in the April-to-June period.

He said the group's profitability performance was strong in the first half of the year thanks to "gradual improvements in sales development" and "continued good cost control".

"With a sharp increase in profit for four consecutive quarters, we are well on the way to achieving our long-term goal of profitability exceeding 10 percent over time," Erver said.

However, he added, "the conditions for achieving that level this year have become more challenging".

Erver said external factors that influence the group's purchasing costs and sales revenues, including materials and foreign currency exchanges, "will have a more negative impact than we expected in the second half of the year".

H&M said sales rose by three percent to 59.6 billion kronor in the second quarter.

But June sales are expected to fall by six percent compared to the same period last year as "unstable weather" hit many of the group's large markets at the start of the month, H&M said.

The company said its operating profit rose to seven billion kronor but it was lower than the 7.5 billion kronor expected by analysts surveyed by financial data firm FactSet.

Source: AFP