Has H&M Officially Lost Its Cool?

H&M is still having a rough go of it in 2018. The Swedish fast-fashion retailer announced its second-quarter fiscal results on Friday, which saw sales stagnate for the second straight time.

Faced with digital competition and an uptick in consumer preference for experiential spending, the company has struggled to keep shoppers coming into stores, and this time it can’t blame cold weather for the disappointing foot traffic. Sales including VAT, converted into Swedish krona, rose by two percent to 60.46 billion kronor, or $6.88 billion, however local-currency sales remained unchanged, coming in below the 0.5 percent increase expected by analysts.

The group has faced inventory and merchandising problems in recent years — issues it is trying to fix with the help of big data — but one of its biggest challenges is the juggernaut competitor it’s squaring up against. Inditex SA, which owns brands like Zara, Bershka and Stradivarius, continues to post strong like-for-like sales and profits, and recently reported better-than-expected gross margin profits.

H&M is launching its new discount chain, Afound, in Sweden this week, bringing the total number of brands under its umbrella to nine. However, its flagship brand still accounts for the vast majority (around nine out of 10) of its stores. The retailer said it operated 4,801 stores as of May 31, 2018, up a net 7 percent from 4,498 a year earlier.

The group reports half-year results on June 28. RBC analyst Richard Chamberlain told Reuters that the second-quarter sales “raise concerns about additional markdowns and operating deleverage.” “We remain cautious on H&M,” he said. The company’s stock sunk 4.3 percent in trading on Friday.

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