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H&M cuts prices to shift leftover summer clothes

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09/15/2017 | 04:38pm CET
File photo shows people walking past the window of a H&M store in Paris

STOCKHOLM (Reuters) - Budget fashion group H&M (>> Hennes & Mauritz) has slashed prices to shift unsold summerwear, in the latest sign the Swedish company is struggling to keep pace with rivals as young buyers move online.

STOCKHOLM (Reuters) - Budget fashion group H&M (>> Hennes & Mauritz) has slashed prices to shift unsold summerwear, in the latest sign the Swedish company is struggling to keep pace with rivals as young buyers move online.

Seemingly unstoppable for decades, H&M has been hit by tougher competition in the past couple of years from cut-price brick-and-mortar rivals. It is also trying to improve its e-commerce offering to counter new online-only players.

H&M entered its third quarter with higher-than-usual inventories that needed to be sold before autumn collections arrived. On top of that, overall demand has been sluggish in some of its key markets, such as Germany.

"The rapid shift from offline to online in the young value fashion market has been one factor behind disappointing sales trends in the past couple of years," said Societe Generale analyst Anne Critchlow, who has a "sell" rating on H&M's shares.

"In most countries, online is not yet integrated with the stores and free delivery and free returns are not available."

Sales at H&M, the world's second-largest clothing retailer after Zara owner Inditex (>> Inditex SA), reached 51.2 billion crowns (£4.72 billion) in its June-to-August financial quarter against a forecast 51.6 billion in a Reuters poll.

Local-currency growth was 4 percent, just below forecast.

H&M said the aggressive summer markdowns had led to an improved inventory position ahead of the fourth quarter and that autumn sales were off to a good start.

H&M's shares, which have tumbled from all-time highs near 370 crowns in 2015, were up 2.2 percent to 218.10 crowns at 1400 GMT.

The company has launched several independent and mostly higher-end brands in recent years to broaden its customer base in the face of growing competition in its budget segment, but the core H&M chain still accounts for the bulk of its sales.

H&M is also intensifying efforts to catch up with services offered by pure-online players such as Asos (>> ASOS plc) and Zalando (>> Zalando) as shopper behaviour and expectations transform even faster than H&M had expected.

It is now testing "click-and-collect" - picking up items bought online in stores - in Britain, and rolling out faster delivery options and online returns in stores in some markets.

RBC Capital Markets Richard Chamberlain with an "outperform" rating on H&M, said he expects sales and gross margin trends to improve next year helped by the online improvements.

(This version of the story refiles to clarify quote in paragraph four)

(Editing by Jason Neely/Keith Weir)

By Anna Ringstrom and Helena Soderpalm

Stocks treated in this article : ASOS plc, Hennes & Mauritz, Inditex SA, Zalando
Stocks mentioned in the article
ChangeLast1st jan.
HENNES & MAURITZ 1.96% 129.24 Delayed Quote.-23.66%
INDITEX SA -1.49% 25.08 End-of-day quote.-13.65%
ZALANDO -0.13% 44.8 Delayed Quote.1.55%
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Financials ( GBP)
Sales 2018 2 472 M
EBIT 2018 101 M
Net income 2018 81,4 M
Finance 2018 109 M
Yield 2018 -
P/E ratio 2018 73,39
P/E ratio 2019 59,25
EV / Sales 2018 2,37x
EV / Sales 2019 1,91x
Capitalization 5 973 M
Duration : Period :
ASOS plc Technical Analysis Chart | ASC | GB0030927254 | 4-Traders
Technical analysis trends ASOS PLC
Short TermMid-TermLong Term
Income Statement Evolution
Mean consensus OUTPERFORM
Number of Analysts 25
Average target price 73,0  GBP
Spread / Average Target 2,2%
EPS Revisions
Nicholas Timothy Beighton Chief Executive Officer & Executive Director
Brian McBride Non-Executive Chairman
Clifford Cohen Chief Information Officer
Nicholas Jon Robertson Non-Executive Director
Ian Dyson Senior Independent Non-Executive Director
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1st jan.Capitalization (M$)
ASOS PLC6.36%8 442
INDITEX SA-13.65%96 553
KERING-2.06%60 039
ROSS STORES-6.49%28 600
ZALANDO1.55%13 723