Clothing giant Hennes & Mauritz (ST:HMb) (HNNMY) made its way on JPMorgan’s Negative Catalyst Watch ahead of the company’s FQ1 2024 report on March 27.
H&M’s sales during December and January fell by 4% when excluding foreign exchange impact, and now JPMorgan projects a 4% year-over-year drop for the whole quarter.
Beyond revenue, while external factors are supporting the gross margin positively, the broker expects an adverse impact from the markdowns.
“Overall, we model +290bps yoy (Q4 23 (+370bps). Whilst we forecast ongoing cost efficiencies, we do not expect the full SEK 2bn programme to have landed yet, and we are also mindful that the yoy move in H2 23 opex was flattered by Russian costs falling away,” said analysts at JPMorgan.
H&M’s shares fell 1.4% in Stockholm.
The analysts now predict that H&M’s operating expenses will drop by 2% compared to last year, resulting in a first-quarter EBIT (earnings before interest and taxes) of 891 million SEK. This figure falls significantly below the consensus expectations for the quarter.
Although the first quarter is typically a slower period for H&M, there are concerns that the slowing pace of improvements in operating expenses, along with the continued uncertainty around shipping costs going into the second half of the year, could indicate more financial risks ahead.
“We therefore place the stock on Negative Catalyst Watch, and reiterate our UW recommendation, with our key medium-term concern being a lack of customer re-engagement with the brand, including in the core US market.”
“We lower our FY 24 EBIT forecast by 6% (leaving us MSD% below BBG cons) driven by slightly higher opex assumptions."