H&M'S $4 Billion Lag Led To Stock Swings For The Next Step.

H&M's continuous sales promotion failed to shake up the parent company Hennes & Mauritz AB (HMb.ST), up to $4 billion in inventory, and the world's second largest apparel retailers, after four consecutive quarters of earnings declines, indicated that they needed to further cut their prices to stockpile.

Morgan Stanley Morgan Stanley analyst Geoff Ruddell pointed out in the research report that the group's high-intensity promotions should last at least for several quarters. On Thursday morning, Hennes & Mauritz AB (HMb.ST) had a sharp setback of up to 4.6% to 128.38 Swedish kronor, and then recovered rapidly under management confidence and recorded a 5% increase in midday.

Hennes & Mauritz AB CEO Karl-Johan Persson said that although the first half of the fiscal year is more challenging than the plan, the performance will gradually improve. The second half of the fiscal year will be stronger than the same period last year. However, the group's fixed forecast for the annual business profit will become more difficult to achieve.

By the end of May, the two quarter profit after tax decreased by 22% to 6 billion 12 million kronor, or 6 billion 280 million krona, which was expected by the market. Net profit also fell by 21.3% to SEK 4 billion 638 million, while the FactSet composite forecast was 4 billion 740 million krona.

In the middle of this month, the group has taken the lead in disclosing quarterly tax sales, which were unchanged at the local exchange rate in the same period last year, less than 0.5% expected by the market, but improved by 1.7% compared with the first quarter. They also maintained stability after the two consecutive fall. However, considering that the group has opened 303 stores in the past 12 months, it is easy to calculate the extremely weak same store sales.

At the same time, global sales of the largest competitor, Zara parent Inditex SA (ITX.MC) Indo textile group increased by 7% in the first quarter of 2-4 compared with the first quarter of the previous month, and increased to 9% in the first half of the two quarter.

Hennes & Mauritz AB pointed out that the necessary spanition to the new logistics system briefly blocked the arrival of new products in the United States and France, and slowed down the online businesses in Italy and Belgium, which affected the sales and profits of these major markets.

Gross profit margin fell 100 basis points to 56.1% year-on-year. Up to the end of May, inventories rose by 13% to 36 billion 333 million kronor, or 4 billion 40 million US dollars, and 3.9% more than the 34 billion 959 million kronor as at the end of February, accounting for 18.2% of the sales tax in the past 12 months, accounting for 16.1% and 17.6% respectively in the same period last year and the previous quarter.

Management has set the target of lowering the inventory ratio to 12%-14% in 2019. Berenberg analyst Michelle Wilson said that the group's serious backlog has come to the seventh quarter, and the hidden problems will take a long time to solve.

In the first half of fiscal year, the total sales tax of Hennes & Mauritz AB, including 114 billion 17 million Swedish kronor, rose by 0.8% on a yearly basis, and after tax sales fell 0.2% to 98 billion 165 million krona, which remained unchanged at local exchange rates. During the period, the ten largest markets in the group were calculated according to the local exchange rate. Only eight European countries had a slight increase in Britain and Denmark. market Germany, Italy and the second largest markets in the United States recorded a decline in the median figure, while France fell 10%, while the fifth largest market in China had a 2% growth.

As of May 31st, the group's nine brands, H&M, COS, Monki, and Other Stories, had 4801 stores in 69 markets worldwide. In the past year, while accelerating the restructuring of H&M sales network, management has also launched two new retail concepts: mid-range brand Arket and discount retailer Afound.

Mid term financial results show that the target of closing stores has been cut from 170 stores to 150 stores. Karl-Johan Persson explains that some stores have been offered a more favorable lease and the new store plan has been maintained at 390, which means that there will be a net increase of 240 stores throughout the year.

The increase in Hennes / Mauritz AB (HMb.ST) was narrowed to 1.8%, at 137.1 Swedish kronor. As of Wednesday, the stock fell 20% in 2018, which has evaporated the market value of 2/3 since its record high in 2015. Inditex SA (ITX.MC) India Textile Group, which has a more flexible and efficient supply chain and earlier integrated online and offline business, has risen by 3% this year.

H&M's founder's son, Hennes & Mauritz AB chairman Stefan Persson, in the first five months of this year, spent 6 billion 400 million Swedish kronor, or about 728 million dollars, through the holding company Ramsbury. market A total of about 53 million shares of Hennes & Mauritz AB (HMb.ST) have been absorbed several times, raising the shareholding ratio of Ramsbury to 44.5%. Coupled with the 5% stake held by her sister Lottie Tham and her family, the shareholding ratio of the founding family was 49.9% and the voting power was about 75%, which led to speculation that the family would privatize the group.

Stefan Persson sold more than 2 billion Swedish kronor, or about 227 million US dollars, after selling Swedish technology company AB AB (HEXAb.ST) last month. This month, when he attended the world's first store opened in Stockholm by the new brand Afound, he said that the privatization rumors had been constantly frying from the listing of the group, emphasizing that there was no correlation between family holdings and rumors.

RBC Capital Markets LLC plus Huang capital market analyst Richard Chamberlain pointed out that the group's same store sales have dropped for three years, and the same quarter store sales in the two quarter were further down by 4%-5% compared with the same period last year. The continued profitability of backsliding may force the board to cut dividends this year or next year, and he recommended "sell" shares of the group.

Some investors also raised doubts about whether Stefan's son Karl-Johan Persson could lead H&M to carry out digital reform and group recovery. He told analysts today that he would be surprised if Hennes & Mauritz AB Mauritz failed to achieve even stronger performance than this year.