On Friday, Hennes & Mauritz AB (ST:HMb) (HMB:SS) (OTC: HNNMY), commonly known as H&M, maintained its Underperform rating with a steady price target of SEK120.00. The company experienced a challenging third quarter, with results falling short of expectations. The flat growth in comparable currency (CC) for the quarter was below the anticipated figure by 150 basis points (bps), and operating margins also disappointed, coming in 165bps under the consensus.
The fashion retailer reported a strong start to the fourth quarter, showing an 11% increase, although this was measured against a weak comparison from the previous year, which saw a 6% decline. The positive reception of H&M's new product collections, supported by increased marketing spending, contributed to this uptick.
Despite the initial success of the fourth quarter, the third-quarter performance was impacted by several factors. The strengthening of the Swedish Krona (SEK), costs associated with the closure of the Afound platform, and additional marketing expenditures all played a role in the lower than expected operating profit margins.
The company's growth rates for the third quarter were largely anticipated and did not come as a significant surprise to the market. However, the weaker operating profit margins were not expected and have been attributed to the aforementioned challenges faced by the company.
The outlook for H&M remains cautious, with expectations of continued lower business growth and weaker margin prospects. The company's performance in the upcoming quarters will be closely watched for signs of improvement or further challenges.
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