H&M won't hit profit target. Why? Cold weather in Europe

H&M unlikely to meet 10% operating margin target this year due to poor summer sales in Europe, despite some recovery in June.

Hennes & Mauritz AB said it’s unlikely to hit an operating margin target of 10% this year after a washed-out summer in Europe hurt sales at the Swedish clothing retailer.

H&M's third-quarter operating profit fell to 3.51 billion kronor, missing analyst expectations, amid increased competition and changing consumer preferences. (Bloomberg)

Chief Executive Officer Daniel Erver said that after the cold weather in Europe in June, the company saw a pick-up in sales, but warned that “at present we estimate that this year’s operating margin will be lower than 10%.” He also pointed to the continued high cost of living for consumers.

Operating profit for the third quarter came in at 3.51 billion kronor ($350 million), below analyst estimates.

Thursday’s results come amid a strategy shift for the Stockholm-based company under Erver who took over after Helena Helmersson stepped down abruptly in January. He needs to improve H&M’s competitiveness against key rival Inditex SA, whose shares surged earlier this month after it said its third quarter was off to a strong start.

Younger consumers aren’t the only people H&M needs to appeal to. In August, analysts at Citigroup Inc. advised clients to sell shares in the Swedish firm and buy those in Zara-owner Inditex.