Swedish high-street fashion stalwart H&M will report incrementally higher sales but lower earnings margins when it reports third-quarter results this Thursday, according to Barclays analysts.
The bank’s EBIT forecast of 4.445 million Swedish krona (£330 million) is -1.3% behind the consensus, which was published earlier this month.
According to Barclays, June sales were down 6%, largely due to unseasonal weather and weak consumer demand.
However, performance improved in July and August, aided by softer comparables, more seasonal weather, and efforts by H&M to improve its product offering and availability.
Barclays anticipates a contraction in gross margin of 40 basis points, citing increased markdowns as a percentage of sales, higher freight and input costs, and less favourable foreign exchange movements as headwinds.
“We expect EBIT margin contraction to be driven, additionally, by provisions related to the group's recent decision to discontinue its digital fashion outlet Afound and additional marketing expenses aimed at stimulating sales growth in the coming months,” said analysts.
It paints a more bearish picture compared to H&M’s Spanish competitor and Zara-owner Inditex, which posted strong results in its second quarter, with sales growing 9.9% on a local currency basis.
Inditex's gross margin expanded by 20 bps, while its EBIT margin grew by 100 bps.
Barclays has a SEK 175 price target on H&M shares, suggesting that downside is in store against its current SEK 184.1 price.