H&M’s revenue growth unexpectedly ground to a halt as shoppers turned away from the Swedish retailer, which has been raising prices while rivals such as Shein offer bottom-dollar discounts.
(Bloomberg) — H&M’s revenue growth unexpectedly ground to a halt as shoppers turned away from the Swedish retailer, which has been raising prices while rivals such as Shein offer bottom-dollar discounts.
Sales growth was flat in constant currencies during the three months through August, missing analysts’ estimates. The low-cost fashion retailer has been allowing prices to creep up lately, according to RBC analyst Richard Chamberlain. He said H&M’s UK prices are only 10% below average lately, while usually the retailer offers a discount of about 20%.
H&M shares fell as much as 5.1% Friday.
Shein has been grabbing market share from major clothing retailers with hard-to-beat offerings such as $1.20 mesh bodysuits and $2 tube-tops. Since it launched, the company has been facing questions about how its products, which mostly made in China, are produced and under what labor conditions.
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H&M said it prioritized profitability and reducing inventory levels during the quarter over sales growth, and it’s working to reach the goal of a 10% operating margin next year. However, analysts are expecting H&M to miss that. The Swedish retailer has spent more than seven years trying to reduce a backlog in inventory.
H&M’s report suggests the company has limited pricing power, said William Woods, a Bernstein analyst.
“This is very weak compared to Inditex’s accelerating second quarter,” he wrote. “We remain skeptical of the margin expansion in the face of weak top-line.”
Inditex SA’s revenue grew 17% at constant exchange rates in the six months through July, H&M’s Spanish rival said Wednesday. That helped fuel a 30% gain in operating profit.
H&M pointed to its exit from the Russian market and lost sales in Ukraine due to the war. Excluding Russia, Belarus and Ukraine, sales growth was 8% in kronor terms, rather than 6%.
H&M is scheduled to report earnings for the third quarter on Sept. 27.
–With assistance from Lisa Pham.
(Updates with details on Shein in third paragraph)
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