NewsH&M shares plummet 14% as profitability target looks elusive

H&M shares plummet 14% as profitability target looks elusive

H&M loses on the stock market
H&M loses on the stock market
Images source: © Getty Images | Kevin Frayer
Robert Kędzierski

27 June 2024 19:11

Shares of Swedish clothing giant H&M fell by 14% on Thursday after the release of weaker-than-expected second-quarter results. The company also warned that achieving a 10% profitability target this year would be more challenging than anticipated.

As reported by the Wall Street Journal, H&M (Hennes & Mauritz), one of the world's largest publicly traded clothing chains, experienced a significant drop in share prices on Thursday. The reason was investor disappointment with the second-quarter financial results and pessimistic forecasts for the near future. The company, listed on the Stockholm Stock Exchange, lost value, reflecting growing concerns about the condition of the entire clothing sector.

H&M with lower profit. Stock market reacts

In the second quarter, H&M achieved a profit of £508 million. This result was lower than analysts' expectations, who predicted a profit of £530 million.

The company admitted that achieving the assumed operating margin target of 10% in the current financial year has become significantly more difficult. Analysts had already questioned this target, pointing to several unfavourable market factors.

Shein to challenge H&M?

Among the main challenges that H&M faces are the declining purchasing power of consumers, rising operating costs, and increasing competition. Notably, the growing position of new players in the e-commerce industry, such as the Chinese giant Shein, which is aggressively gaining market share, is highlighted. These factors negatively impact H&M's margins and growth potential, which is reflected in investors' reaction.

H&M also admitted that the beginning of the third quarter did not bring the expected improvement. The company warned that June sales might be lower than in the same period last year, further fuelling investor concerns about the company's future financial results. This information suggests that H&M's problems may be long-term and not limited to one quarter.

Market experts emphasise that H&M must revise its business strategy. The company needs to find a way to increase operational efficiency and improve margins in a challenging market environment. Further investments in online channels and physical store network optimisation may prove crucial in better responding to changing consumer preferences.

Related content