Morningstar | H&M Sales Growth Accelerates in 2Q 2019; FVE Maintained
We are retaining our fair value estimate of SEK 153 for no-moat H&M as the company reported second-quarter (March-May) 2019 constant currency sales growth of 6% (versus our expectations for 4% annual lift and 4% growth in the first quarter). Competitor Inditex delivered 5% constant currency growth in the first quarter (February-April). A comparison base remains easy for H&M, with constant currency growth flat in the second quarter of 2018, but getting more challenging in the quarters to come. We believe the steps the company is taking, notably speeding up the supply chain, improving the quality/price offering and developing online channels are delivering positive results, as seen in the increases in sales. It is still unclear whether the costs of this improvement in performance will continue to weigh on the bottom line as the company reports full second-year figures on June 27. We expect margins to come under further pressure in 2019 (we forecast a 7.1% operating margin versus 7.4% in 2018) before improving to over 10% in future.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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