Investors Don H&M’s Stock

HM earnings

Image source: Julian Rovagnati, koosen, Hurst Photo, modustollens, Creative Lab - Shutterstock

What's going on?

Global fashion giant H&M reported a weaker-than-expected quarterly profit on Thursday – but investors donned their glad rags as its shares rose 14%.

What does this mean?

H&M made less profit between March and May than it did last year, despite bringing in more revenue. That was partly down to tough competition from cut-price rivals, as well as unseasonable weather leaving over-optimistic spring trends languishing on the clearance rack – and therefore clearing H&M a lower markup.

But the company’s ecommerce improvements are now paying dividends. And unpredictable weather aside, it’s increasingly getting the right products to the places customers want them, reducing the need to discount. H&M said that sales so far this quarter are growing twice as fast as the last – which bodes well for its future earnings.

Why should I care?

For markets: Investors are bad eugoogoolizers.

H&M’s share price has fallen 43% over the last five years, while that of larger rival Inditex, owner of Zara, has risen 11%. That’s partly because investors saw Inditex besting H&M at every turn – right or left. But those buying H&M’s stock on Thursday may now see a new direction for the company as its restructuring begins to take effect. After all, Macy’s has demonstrated (to some extent) that massive struggling retailers can still rediscover some revenue and profit growth at the back of their closets.

The bigger picture: More reasons to be optimistic.

It wasn’t just the green shoots of an H&M turnaround which buoyed investors on Thursday: shares of German pharmaceuticals and life sciences giant Bayer rose 9%. A notorious activist investor, Finimize regular Elliott Management, has amassed a 2% stake in the company – and believes it could be worth 50% more than it is at present. Sorting out (and perhaps even reducing) enormous fines related to Bayer’s weed/human killer would help…

Originally posted as part of the Finimize daily email.

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