H&M shares jump as logistics revamp helps speed sales

By Helena Soderpalm and Olof Swahnberg

STOCKHOLM (Reuters) - H&M's sales bounced back in the third quarter, helped by a new logistics system, as the world's second biggest fashion retailer said a revamp to meet growing online and budget competition was paying off.

The Swedish company's shares, which have lost nearly two thirds of their value since record highs in 2015, jumped as much as 13 percent in early Monday trade.

Dealers said the stock was also boosted by a report in Britain's Mail on Sunday newspaper that H&M chairman and main owner Stefan Persson had talked to banks about "a massive debt financing package for further share purchases and a mega deal to take the firm private". H&M declined to comment.

 

H&M has seen profits shrink and inventories pile up over the past couple of years as its core budget brand has lost sales to low-price rivals like Primark and Forever 21 as well as online competitors such as ASOS and Zalando.

However, the company has invested heavily in digitalisation, cut prices and launched a review of its mix of stores and brands, closing some H&M stores and expanding its newer brands more quickly. It is also working on a new H&M store concept.

The firm, which will report full fiscal third-quarter figures on Sept. 27, said the steps it had taken "to face the major shift within the industry" had contributed to gradually improved sales and increased share in many markets.

"We are in a transition year and see that things are starting to go in the right direction," Nils Vinge, head of H&M investor relations, told Reuters.

H&M's local-currency sales including value added tax (VAT)rose 4 percent in the June-August period, against a mean Reuters poll forecast for a 1.9 percent increase. They were flat in the second quarter.

Reported sales excluding VAT were up 9 percent to 55.8 billion Swedish crowns ($6.2 billion), beating a forecast 5.5 percent rise to 54.0 billion crowns.

Bigger rival Inditex, the owner of Zara, last week reported 3 percent sales growth for the six months to the end of July, and forecast second-half like-for-like sales growth of 4-6 percent as well as improved profitability.

"We think H&M has done the right thing in lowering entry point prices and investing in its offer for the long term, but expect this to lead to margin pressure in the short term," RBC Capital Markets said in a note.

Lars Soderfjell, portfolio manager at Alandsbanken, agreed, noting like-for-like sales were probably still down 1 to 2 percent in the quarter: "There is a headline surprise, which is enough to lift an underowned stock significantly."

H&M shares have been heavily shorted recently, which traders said exacerbated Monday's recovery.

LOGISTICS

The stock has gyrated this year as the founding Persson family has made large stock purchases, stoking rumours of buyout plans. Persson dismissed the talk in June.

H&M shares have also lagged Inditex, which has been helped by a more flexible supply chain and earlier integration of online and stores with services such as click-and-collect.

H&M is rolling out a new logistics system to make its supply chain faster and more efficient and better integrate its more than 4,700 stores with its website, which Vinge said had overall been helpful in the quarter.

However, the retailer said the introduction of the system had hit sales and raised costs in important markets such as the United States, France, Italy and Belgium. Vinge said the logistics problems should be over after the fourth quarter.

"We have solved the fundamental problems. It will have an impact on the fourth quarter as we have a backlog with the supply of new fashion garments especially in the U.S., but it will be smaller for each and every day," he said.

H&M has forecast a continued slowdown in comparable sales at its physical stores this year, and a return to growth in 2019.

($1 = 8.9917 Swedish crowns)

(Reporting by Helena Soderpalm; Additional reporting by Olof Swahnberg; Editing by Emma Thomasson and Mark Potter)