Hennes & Mauritz AB and Asos Plc shares rallied after the clothing retailers reported signs of improving prospects.
(Bloomberg) — Hennes & Mauritz AB and Asos Plc shares rallied after the clothing retailers reported signs of improving prospects.
H&M gained as much as 6.9% after second-quarter revenue exceeded pre-pandemic levels and the Swedish clothing chain said June got off to a good start.
Asos surged as much as 16% after returning to profit. The UK e-commerce retailer forecast as much as £60 million ($76 million) of adjusted operating income in the second half as it cuts inventory and boosts its underperforming brands and markets.
Chief Executive Officer Jose Antonio Ramos Calamonte is trying to overhaul Asos as speculation swirls around the future of the retailer, whose value has shrunk about 90% in the past three years. Billionaire Mike Ashley, majority holder of Frasers Group Plc, raised his stake in recent weeks after Anders Povlsen, who owns Danish fashion group Bestseller, took part in an equity raise.
Read more: Asos Turnaround Shows Some Progress With Return to Profit
H&M’s sales were flat in the three months through May as cold spring weather weighed on shoppers’ purchases, the retailer said Thursday. Revenue of 57.62 billion kronor ($5.4 billion) means it’s the first quarter for H&M to report that business has recovered entirely from the pandemic.
The Swedish retailer is struggling to match sales growth of Zara chain owner Inditex SA, which last week reported a 15% rise in revenue for the three months through April. H&M has been trying to gain new clients with a collection with fashion house Mugler that went on sale last month.
Jeffries analysts James Grzinic and Frederick Wild said H&M’s figures were a “little less downbeat than feared” but were worse than rivals, partly because of H&M’s exposure to northern Europe, which had a cold May.
Read more: Inditex Surges as Zara Shoppers Buy More in Bigger Stores
Clothing retailers face heightened competition from online upstart Shein, which is gaining customers worldwide by offering garments at cut-rate prices.
What Bloomberg Intelligence Says:
Hennes & Mauritz’ flat 2Q local currency sales imply around 2% declines in each of April and May, suggesting that new collections aren’t creating the urgency to purchase that some competitors have. The final months of the spring/summer season need significant improvement to avoid further gross margin pressure and to make progress in reducing inventory which, at 135 days, is about 50% higher than an optimal level.
— Charles Allen, BI retail industry analyst
Asos’s return to profitability is a “positive sign,” although challenges remain, Caroline Gulliver, an analyst at Stifel, wrote in a note to clients.
After booming during Covid lockdowns, online-only fashion brands have struggled lately as consumers revert back to visiting brick-and-mortar stores. Shoppers are also prioritizing their spending on pricey essentials like food and household bills, leaving little money for discretionary purchases like apparel.
–With assistance from Joel Leon.
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