People walk past a H&M shop in Oxford Street, London on August 6, 2018.
H&M has battled intensifying inventory problems after two years of persistently high stock levels © Tolga Akmen/FT

Shares in H&M Hennes & Mauritz rose as much as 13 per cent on Monday after the Swedish fashion retailer said a drive to revamp its business in the face of deteriorating profits and an inventory backlog had bolstered sales in the third quarter.

In a market update, H&M said its transition “to face the major shift within the industry” had led to “improved sales development and increased market share in many markets”. Revenues both including and excluding VAT rose 9 per cent to SKr64.8bn (€6.2bn), and SKr55.8bn respectively.

However, the rollout of new logistics systems — to streamline the supply chain and better integrate its in-store and online divisions — earlier this year had increased costs and held back third-quarter sales in key markets including the US, France, Italy and Belgium, the group said.

In June, the fast-fashion chain reported that trouble shifting stock had pushed down profits by a third in the first six months of the year. H&M has battled intensifying inventory problems after two years of persistently high stock levels, and has simultaneously had to tackle the challenge of moving more of its sales online as footfall in stores has declined.

H&M’s share price hit a more than 10-year low in March after it reported a 60 per cent slump in profits in the first quarter, and shares are down 18 per cent so far this year.

Earlier this month, RBC analyst Richard Chamberlain said he expected the group’s third-quarter margins “to be affected by further inventory clearance and US warehousing disruption”, and revised down H&M’s price target from SKr110 to SKr105.

Responding to Monday’s update, Mr Chamberlain said: “Although the company is taking steps to address some of its areas of recent underperformance, we expect any recovery to be more gradual than the market anticipates. In particular, we think sourcing cost headwinds are building for H&M into next year.”

Andreas Inderst, analyst at Macquarie Group, said: “H&M continues to be outclassed” by rival Inditex, owner of the Zara chain and the world’s largest clothing retailer by revenues.

Last week, the Spanish group reported that revenues rose 3 per cent to €12bn in the first six months of the year, with net profits also up 3 per cent to €1.4bn. It added that like-for-like sales were expected to climb 4-6 per cent in the second half. 

Mr Inderst said that “given its logistics hiccups as well as a still too high inventory position”, he expected H&M’s third-quarter earnings to be “very weak”. But, he added, “investors are aware of that and today’s news did not offer any further incremental negative news”.

H&M will publish a report for the nine months to August 31 on September 27.

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