STOCHOLM, Sept 26: H&M scrapped its earnings margin target for 2024 as higher discounting, costs and fierce competition hurt operating profit in the third quarter, sending shares in the world's No.2 listed fashion retailer down as much as 8 percent.
H&M has struggled to boost its profitability amid high inflation, weaker consumer demand and competition from its bigger Spanish rival Zara, owned by Inditex, and cut-price online fast-fashion retailer Shein.
"At present we estimate that this year's operating margin will be lower than 10 percent," Chief Executive Daniel Erver said in a statement.
H&M said costs related to shutting down its online fashion outlet Afound hurt profit, as well as currency movements, and that the cost of markdowns had increased over the quarter.
The Swedish retailer has also increased marketing spending as part of Erver's strategy to elevate the brand.
It had cautioned in June that factors such as material costs made the 2024 target harder to reach, but scrapping the goal entirely with no new margin guidance increases the pressure on Erver, who has been CEO for just eight months, to accelerate the turnaround.
H&M's operating margin for the first three quarters was 7.4 percent, with a third-quarter margin of 5.9 percent. The last year H&M produced a double-digit operating margin was 2017.
"The growth rates were widely expected so shouldn't be a huge surprise but the margin weakness will continue to disappoint," said Bernstein analyst William Woods.
The early fall in H&M shares erased some of their recent gains fuelled by investor hopes that business had improved recently after poor weather during the summer months put shoppers off splashing cash.
They were down 5 percent at 0755 GMT, among the biggest fallers on the pan-European STOXX 600. —Reuters
