H&M Swings Back to Profit, June Sales Jump as Restrictions Ease

The world’s second-biggest fashion retailer swung to a pretax profit of 3.59 billion crowns ($419 million) from a year-earlier loss of 6.48 billion. Analysts polled by Refinitiv had on average forecast a 3.42 billion crown profit.

Sales in June 1-28, the first month of H&M’s third quarter, were up 25% measured in local currencies. The company had flagged earlier that sales for the first two weeks of the month were higher than in 2019.

“With our much-appreciated collections, our ongoing transformation and the fact that markets are gradually being opened up, our recovery is strong,” Chief Executive Helena Helmersson said in a statement.

“Online sales have continued to develop very well even as the stores have opened, which shows that customers appreciate the collections and being able to shop via their preferred channel,” she said.

($1 = 8.5635 Swedish crowns)

(Reporting by Anna Ringstrom; editing by Niklas Pollard)

Earnings to Watch Next Week: Oracle, H&R Block, Lennar and Adobe in Focus

Earnings Calendar For The Week Of June 14

Monday (June 14)

Ticker Company EPS Forecast
PDCO Patterson Companies $0.51
EV Eaton Vance $0.92
MIK Michaels Companies $0.30

Tuesday (June 15)

IN THE SPOTLIGHT: ORACLE

ORACLE: The world’s largest database management company is expected to report its fiscal fourth-quarter earnings of $1.31 per share, which represents year-over-year growth of over 9% from $1.20 per share seen in same period a year ago.

The Austin, Texas-based computer technology corporation would post revenue growth of more than 6% to $11.07 billion. In the last four quarters, on average, Oracle has beaten earnings estimates about 6%.

Oracle’s current low valuation at ~14x CY22e EPS reflects its slower growth rate compared to peers. Despite potential opportunities within existing database customers and cloud-based ERP applications, offsets from waning businesses mean 2021 likely lacks the catalysts for the positive inflection in revenue growth investors would need to see to drive multiples higher,” noted Keith Weiss, equity analyst at Morgan Stanley.

“We see 16% EPS growth in FY21 and 6% in FY22, driven by an aggressive pace of share buybacks. However, cc revenue growth is ~2%, in a software sector filled with strong secular growth stories, and just 2% operating income growth points to Oracle potentially reaching peak margins, leaving us Equal-weight at our $73 PT.”

H&R Block: The largest tax provider in the U.S. in terms of offices and revenues is expected to report its fiscal fourth-quarter earnings of $5.07 per share, which represents year-over-year growth of over 68% from $3.01 per share seen in the same period a year ago.

The tax preparation company operating in Canada, the United States, and Australia would post revenue growth of over 32% to around $2.4 billion.

HRB’s core business of assisted tax prep has seen declining volumes over the last 8 years, which we expect to continue this year. We expect the assisted business to remain under pressure given the industry shift toward DIY offerings, with a modest offset from HRB’s own growing DIY business,” noted Jeffrey Goldstein, equity analyst at Morgan Stanley.

“Recent acquisition Wave Financial could be a driver of long-term upside but limited synergies and competitive market makes it hard to prove ROI. HRB generates a high degree of FCF with share buybacks driving double-digit-digit EPS growth in the out years of our model. The stock trades at an attractive normalized FCF yield which suggests the stock could re-rate significantly by improving volumes.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE JUNE 15

Ticker Company EPS Forecast
ORCL Oracle $1.31
HRB H&R Block $5.07
AHT Ashtead Group £0.29
HDS HD Supply Holdings $0.34

Wednesday (June 16)

IN THE SPOTLIGHT: LENNAR

The Miami-based home construction company is expected to report its first-quarter earnings of $2.37 per share, which represents year-over-year growth of over 40% from $1.65 per share seen in same period a year ago.

The United States’ leading homebuilders would post revenue growth of about 17% to $6.16 billion.

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE JUNE 16

Ticker Company EPS Forecast
LEN Lennar $2.37
KFY Korn Ferry International $0.98

Thursday (June 17)

IN THE SPOTLIGHT: ADOBE

The U.S. multinational computer software company is expected to report its fiscal second-quarter earnings of $2.81 per share, which represents year-over-year growth of about 15% from $2.45 per share seen in same period a year ago.

The San Jose, California-based software company would post year-over-year revenue growth of over 19% to $3.73 billion.

Adobe has leading market share in some of the most dynamic secular growth areas in software: creative design, dynamic media, and marketing automation. As such, we see the longer-term growth story for ADBE as better than most,” noted Keith Weiss, equity analyst at Morgan Stanley.

“With a large recurring rev base and operating margin improvements expected (as margin pressure from recent acquisitions comes to an end), we expect 20%+ EBIT CAGR from FY20-FY22 and believe this durable growth is not fully reflected in shares. Our $575 PT is based on 41x CY22e EPS of $13.96, which implies ~2.3x PEG on 16% EPS CAGR from FY20-FY22e.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE JUNE 17

Ticker Company EPS Forecast
JBL Jabil Circuit $1.04
ADBE Adobe Systems $2.81
KR Kroger $0.98
CMC Commercial Metals $0.84

Friday (June 18)

There are no major earnings scheduled

H&M Vows to Rebuild Trust in China After Xinjiang Backlash

By Anna Ringstrom and Helena Soderpalm

The comments come as Western brands battle to strike a balance between consumers in the world’s second-largest economy and public opinion at home, which has become increasingly concerned about reports of forced labour in Xinjiang.

China denies the reports.

H&M, which also reported a quarterly loss due to the continued closure of some of its shops in the pandemic, has come under fire from consumers and officials in China after one of its statements from 2020 resurfaced on social media.

In it https://hmgroup.com/sustainability/fair-and-equal/human-rights/h-m-group-statement-on-due-diligence, the world’s second-biggest fashion retailer expressed concern about the allegations of forced labour in Xinjiang and said it would no longer source cotton from there.

China is H&M’s top clothing supplier and fourth-biggest market by sales.

Other Western brands including Burberry, Nike and Adidas have also been hit by consumer boycotts in China for raising similar concerns.

In a statement https://hmgroup.com/news/statement_hm_china alongside its quarterly results, H&M said its commitment to China remained strong and it was dedicated to regaining the trust and confidence of customers, colleagues and business partners there.

“By working together with stakeholders and partners, we believe we can take steps in our joint efforts to develop the fashion industry, as well as serve our customers and act in a respectful way,” it said.

The statement made no mention of Xinjiang, and did not give details on how H&M hoped to win back Chinese consumers’ trust.

“Why doesn’t H&M apologise openly to consumers?” a post from state-owned China Central Television on microblog service Weibo said on Wednesday, calling H&M’s statement a “second-rate public relations article full of empty words lacking sincerity.”

BACKLASH

H&M Chief Executive Helena Helmersson, formerly head of sustainability, told analysts and reporters on a call that 20 of the Swedish group’s stores were currently closed in China, but declined to say whether that was related to the backlash.

H&M’s official store on Alibaba’s e-commerce platform Tmall in China has not been accessible for days, and on Wednesday its app was not available on the app stores of Chinese mobile companies Huawei and Xiaomi.

The Human Rights section of H&M’s website hmgroup.com on Wednesday no longer carried the link to its 2020 statement on Xinjiang, though the statement could still be accessed through the page’s direct address.

Statements expressing concerns about Xinjiang previously seen on the websites of several western fashion retailers, including Zara owner Inditex, were no longer available on Wednesday.

H&M declined to comment. Inditex did not respond to requests for comment.

Helmersson declined to say whether the backlash in China had caused any supply chain disruptions.

H&M shares were down 2.4% at 1130 GMT.

“We have seen brands like Nike and H&M weather similar controversies in the past and maintain relatively strong sales, however short term we think H&M may see a negative impact on its sales in the large and growing Chinese market,” RBC Capital Markets analyst Richard Chamberlain said in a note.

H&M reported a pretax loss for December-February, its fiscal first quarter, of 1.39 billion crowns ($159 million) against a profit of 2.50 billion a year earlier. Analysts polled by Refinitiv had on average forecast a 1.41 billion crown loss.

Sales for March 1-28 were up 55% in local currencies, against a period heavily disrupted by the pandemic a year ago.

H&M said it would not propose a dividend at its annual general meeting but saw good prospects of one in the second half of the year.

(Reporting by Anna Ringstrom and Helena Soderpalm. Additional reporting by Victoria Waldersee. Editing by Keith Weir and Mark Potter)

Fashion Giant H&M’s Sales Recover in March as Stores Reopen After Lockdowns

By Anna Ringstrom

The world’s second-biggest apparel retailer said on Monday net sales fell 27% from a year earlier, or 21% when measured in local currencies, to 40.1 billion crowns ($4.72 billion).

Analysts had on average forecast a 30% decline in net sales for the period – the Swedish group’s fiscal first-quarter – according to Refinitiv SmartEstimate.

“Sales development was significantly affected by the COVID-19 situation, with extensive restrictions and at most over 1,800 stores temporarily closed,” H&M said in a statement.

“Since the beginning of February, a number of markets have gradually allowed stores to reopen and at the end of the quarter around 1,300 stores remained temporarily closed,” it said, adding that online sales had continued to develop very well.

RBC analyst Richard Chamberlain, who has a “sector perform” rating on H&M’s shares, said the figures implied that online sales had provided a stronger-than-expected boost in February.

H&M said sales in the March 1–13 period were up 10% in local currencies as many countries, including single-biggest market Germany, began allowing some stores to reopen. However, about 900 of H&M’s approximately 5,000 stores remained closed due to pandemic lockdowns as of March 13.

Chamberlain said most stores should be open by mid-April bar new lockdowns in Europe, H&M’s main market.

“As such, we see potential for a strong sales recovery in the remainder of the year, with potential for gross margin to surprise on the upside, due to the weaker U.S. dollar,” he said.

Market leader Inditex, the owner of Zara, last week forecast a return to healthy sales as soon as lockdown are lifted, as it reported a 70% fall in profit for its fiscal year through January. It predicted all its shops would be open by mid-April.

H&M, whose full December-February earnings report is due on March 31, is bracing for a loss in the quarter after the pandemic slashed 2020 profits by 88%.

Shares in H&M were up 3% in early trading, taking a year-to-date rise to 32%

(Reporting by Anna Ringstrom; editing by Niklas Pollard, Kirsten Donovan)