Why H&M’s Sales Surged This Quarter While Asos’ Faltered
After several years of declining profits and mounting inventory, H&M finally had some good news for investors on Monday: Sales rose 12 percent in the three months through November, it said, the fastest growth it’s seen since 2015.
Revenues for the quarter hit 56.4 billion kronor ($6.2 billion) excluding VAT, beating the 56.1 billion kronor analysts expected for the Swedish fast-fashion giant. Still, the company’s stock sank more than 7 percent as analysts cautioned about the role that Black Friday promotions may have played in the sales surge. That could ultimately undermine H&M’s margins and limit its profitability, details of which will become clear when it reports full-year results on Jan. 31.
Asos, meanwhile, is experiencing a dramatic sell-off on the announcement that its annual profit will come in lower than expected due to disappointing November sales. In Monday trading, its share price fell nearly 40 percent, representing a 800 million-pound ($1 billion) loss in market value.
“We achieved 14 percent sales growth in a difficult market, but in the light of a significant downturn in November, we think it’s prudent to recalibrate our expectations for the full year,” said CEO Nick Beighton in a statement. “We are taking all appropriate actions, and our ambitions for Asos have not changed.”
Its outlook for its current fiscal year, which runs from September 2018 through August 2019, now includes sales growth of 15 percent (down from 20 to 25 percent), and gross margins down 150 basis points (versus a flat 49.9 percent prior to the revisions).
On top of the current economic unrest in Europe, the U.K.-based online retailer, which has for years been one of the industry’s success stories, said it came up against a “high level of discounting” among its competitors in November, a crucial month as the kickoff to the holiday season. Its own promotional efforts cut into margins but weren’t strong enough to lure as many shoppers as it hoped for, Beighton said on a call with investors.
Both retailers illustrate the precariousness of discounting during the holiday season: For brands already locked into the promotional cycle, it can be impossible to sit out on bargains, but even as slashed prices boost sales, it’s a race to the bottom if it means shoppers will ultimately turn away from full-price inventory.
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