Hennes & Mauritz AB is trying out a new look: better than expected performance.
The Swedish fashion retailer that has been reeling from stagnant sales and bloated inventory reported an unexpectedly strong increase in revenue in the three months to Aug. 31.
The company’s third-quarter growth of 9 percent, including currency moves, beat analyst estimates – but sales were also up 4 percent in local currencies.
The trouble is, this is only half the picture. We will have to wait until Sept. 27 to hear how profits fared, and how much of a dent H&M made in its pile of unsold garments, which totaled about $4 billion at the start of the quarter.
Sharper fashions and lower prices have helped. But H&M said it had suffered from disruption as it implemented a new logistics system – this looks set to have an impact on profit.
Monday’s report is certainly more encouraging than the disappointment that investors have got used to. The shares rose the most in 16 years – but that will look over-optimistic unless it can make progress on inventories.
Here, it has an uphill climb. Associated British Foods Plc’s Primark continues to expand with its cheap chic. Meanwhile, the stronger dollar puts pressure on costs, given that H&M orders about 80 percent of its garments from Asia, which are normally denominated in the U.S. currency.
Given the company’s sales rollercoaster, H&M would be better off in private hands. The Mail on Sunday reported that Chairman Stefan Persson had sounded out banks about supporting a buyout. He and his family own about half of the shares.
Even with such a big shareholding, this would be a substantial deal. Despite the company’s recent travails, it still has a market capitalization of $26 billion. It has also seen its net cash pile shrink, so has less financial flexibility for a buyout.
But if it could surmount the hurdles to going private, moving out of the spotlight would ease pressure on H&M as it works to turn around the business.
For all its problems, other retailers should learn from the parent company’s example. It has been innovating with new concepts, such as Arket and &Other Stories. It also has an admirable focus on sustainability.
The trouble is, these rising stars are dimmed by deep problems at the core chain. Away from the scrutiny of the stock market, both sides of the business would have the space to find their way.
Andrea Felsted is a Bloomberg Opinion columnist covering the consumer and retail industries. She previously worked at the Financial Times.
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