(Bloomberg)—Hennes & Mauritz AB revenue growth showed a slowdown in April and May, stymieing the Swedish clothing retailer’s attempts to reduce a buildup of inventory that’s been weighing on earnings.
Sales in the latest quarter were above analysts’ estimates as compiled by Bloomberg News. But the figures suggest growth slowed to 5.5% in April and May from a 7% rate in March, wrote Fredrik Ivarsson, an analyst at Kepler Cheuvreux.
That suggests stock-in-trade probably increased 4% in local currencies at the end of May, said Ivarsson, who estimates earnings were flat for the quarter. The shares fell 1.8% as of 9:53 a.m. in Stockholm, having earlier dropped as much as 3.1%.
Clothing retail has been a difficult market lately, with Inditex SA reporting weak sales recently due to rainy and cold weather and Gap Inc. suffering a 10% drop in revenue at its namesake chain. H&M, which had pledged to reduce discounts, said turnaround initiatives are starting to work, though challenges remain. The biggest of those is that backlogs are standing near the equivalent of a fifth of total revenue.
“We expect inventories to remain high at the end of the second quarter,” wrote Richard Chamberlain, an analyst at RBC Europe. He added that H&M faces a risk that customers may start to expect discounts the longer inventories build up.
H&M is scheduled to report earnings on June 27 for its second quarter, which ran through May. Analysts expect a 3% increase in operating profit, which would be the first gain in two years.
--With assistance from Hanna Hoikkala.
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