Morningstar | Hennes & Mauritz 3Q Sales Show Improvement Despite Logistics Systems Transition Hurdles; FVE Kept
We are maintaining our fair value estimate of SEK 140 per share for no-moat Hennes & Mauritz, as the company reported improvement in third-quarter sales. The group delivered 4% growth at constant currencies, versus flat development in the first half of the fiscal year and 0%-1% growth we forecast for the full year. We expect to adjust our current-year forecasts slightly upwards to reflect sales improvement occurring a bit earlier than expected, which could increase our fair value estimate by a low-single-digit percentage. We are looking forward to the company’s nine-month report on Sept. 27, 2018, to obtain more details on performance.Sales improvement came despite continuing disruptions in U.S., France, Italy, and Belgium (which together contributed over 25% of sales in 2017), owing to transitioning to new logistics systems (in the second quarter, the impact of disruption on sales was 2%, and it was expected to be less than that in the third quarter). The company claimed to have gained market share in many markets in the quarter. We see shares as attractively valued, trading at around a 14% discount to our fair value estimate, in 4-star territory.
We still believe that the initiative of speeding up the supply chain, product price and quality investments, and store count rationalisation should help stabilise the core H&M brand performance over time.
H & M Hennes & Mauritz is engaged in the sale of clothing and cosmetics in Sweden and internationally. Co.'s stores offer basics, tailored classics, sportswear, and maternity clothes for women; basics, leisurewear, and seasonal fashions for men; denim and street fashions; and fashion wear for children and teenagers, as well as accessories, underwear, and shoes. Co. also provides makeup and body care products; and home fashion products, which include interior textiles for the bedroom, bathroom, living room, and kitchen. Co. has approximately 3,132 stores, including 110 franchise stores, 85 COS stores, 79 Monki stores, 21 Weekday stores, 8 & Other Stories stores and 3 Cheap Monday stores.
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