Investing.com -- Shares of H&M (ST:HMb) Group fell on Thursday after it reported a drop in gross profit, which fell 2.8% on a year-on-year basis to SEK 30,133 million.
Net sales for the quarter fell 3.1% on a year-on-year basis to SEK 59,011 million.
At 3:34 am (0734 GMT), H&M Group was trading 7.6% lower at SEK 167.6.
Despite this decline, the company managed to slightly improve its gross margin, rising to 51.1% from 50.9% in the third quarter of 2023.
Daniel Ervér, CEO of H&M, in a statement said that the quarter initially faced challenges due to slow sales in June, driven by unseasonably cold weather in many key European markets.
However, operating profit experienced a sharper contraction, dropping by 26% to SEK 3,507 million. This contraction led to a lower operating margin of 5.9%, compared to 7.8% in the prior year.
The decline in profitability was partly influenced by a rise in selling and administrative expenses, which increased by 1% to SEK 26,602 million. In local currencies, these costs grew by 4%, putting additional pressure on margins.
“We note SEK550mn of costs in Q3 due to long-term marketing investments and winding down costs mainly for Afound, a large part of which is said to consist of long-term marketing investments,” said analysts from RBC Capital Markets in a note.
The result after tax also reflected these challenges, falling to SEK 2,307 million, a significant drop from SEK 3,319 million in Q3 2023. This led to a decline in earnings per share, which dropped to SEK 1.44 from SEK 2.04 in the same period last year, marking a 31% decrease.
Cash flow from operating activities also weakened, coming in at SEK 8,215 million compared to SEK 12,257 million last year.
“Consumers’ living costs have remained high during the year, and at the same time we continue to see turbulence in the world around us. External factors have impacted our sales revenue and purchasing costs more than we expected,” Ervér said.
Meanwhile, the company’s stock-in-trade increased by 3% to SEK 41,738 million, indicating a higher inventory level.
H&M management remains confident in the composition of this inventory, describing it as "good" for future demand.
The company's autumn collection has been well received, with expectations for September 2024 sales to grow by 11% in local currencies compared to the same period last year.
“For Q4, external factors on gross margin are expected to be negative and the cost of markdown is also expected to increase yoy. Investments in marketing are continuing in Q4, with costs expected to be a little higher than in Q3,” the analysts said.