H&M profits drop 22% dragging share prices down

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H&M has seen its shares dive more than four per cent this morning after it revealed lower than expected quarterly profits.

The fashion retailer reported a 22 per cent year-on-year fall in pretax profits for the three months to May to 6.01 billion SEK (£510 million), just above the 21 per cent drop predicted by analysts.

Sales excluding VAT remained largely flat, coming in at 51.98 billion SEK (£441 million) over the quarter, while gross profits dropped slightly to 29.1 billion SEK (£2.5 billion) corresponding to a gross margin of 56.1, down from 57.1 a year earlier.

This drop in profits was reportedly due to its newly updated logistics system, which caused connection outages throughout the period.

It also reported entering the period with too much stock, and will now look to heavy discounting to solve the issue.

“The first half of the year has been somewhat more challenging than we initially thought, but we believe that there is a gradual improvement and that we will see a stronger second half,” chief executive Karl-Johan Persson said.

“The rapid transformation of the fashion retail sector continues, and we are in a transitional period that is both exciting and challenging. As we signalled previously, it was going to be a tough first half-year.

“Overall, total sales for the quarter were not satisfactory, which meant that inventory levels were still too high at the end of the period.”

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