Spotlight shines harder on H&M

Jonathan Boyd
clock • 3 min read

The founding Persson family may still be the overwhelming largest single shareholder and holder of voting shares in clothing giant H&M, but the past week has seen it fall under the spotlight still further following publication of holdings data suggesting a sharp divergence between bulls and bears.

Business press in Sweden, citing Holdings, the services supplier of ownership data, noted that there had been an increase during the first quarter of holdings by Harris Associates, the affiliate of Natixis Investment Managers. The US investor held over 7% of the company by the end of March, the data suggests.

Meanwhile, there have also been reports of chairman Stefan Persson acquiring another SEK2bn (€194m) or so of shares in recent weeks, again, according to data published by Holdings.

A note published by managers of the Harris Associates International Equity Strategy recently admitted that H&M shares were among the bottom performers of the portfolio, but that it so far was keeping faith in the longer term prospects.

“H&M’s shares reacted negatively to fiscal 2017 results reported in January. Disappointing fourth-quarter sales and elevated inventory levels led to increased markdowns. H&M lacked enough of the right product overall or enough of the right product in the right stores, which resulted in poor sell-through. In addition, it seems price grouping projections were apparently incorrect and there were too many relatively high-cost items that did not sell,” the note stated.

“These internal issues amplified the external pressures facing the entire retail sector. Weak sales combined with gross margin pressure led to a significant decline in earnings year-over-year. First-quarter numbers reported in March were also weak, though management signaled these results in February at the company’s capital markets day (CMD). Also at the CMD, in a show of increased transparency, management provided insight into current performance and highlighted that the online offering was stronger than many had expected. The management team provided more detail on plans to grow the like-for-like sales in physical stores and profits over the long term. In the short term, however, we expect conditions to remain challenging. The second half of fiscal 2018 will be a critical period for H&M’s evolution and for determining if its many initiatives will be successful. Despite the company’s performance, management’s guidance still indicates improved results and a slight earnings increase during the year. H&M has been a frustrating investment, but we believe management is making progress and that the investment will reward shareholders in the long term.”

That outlook contrasts sharply with other data provided by Finansinspektionen, the Swedish Financial Supervisory Authority, and also reported by local business press, which suggested recently that stock on loan had hit 3%, or a record high, as investors bet that the share price would fall still further.

From March 2015 to March 2018, the price fell from around SEK359 to SEK129, wiping out billions of SEK in value for investors who historically have been more used to a never ending increase in store openings and increases in like-for-like sales.

The reason H&M’s share price matters is its inclusion in many portfolios. For example, in the ETF space, there are a number following the Stoxx Europe 600 Retail index, of which it is a constituent according to FE data. This shows the performance of such funds over the past three years.

The stock is also a constituent of the OMX 30 index of most traded stocks on the Stockholm Stock Exchange, and hence will be a key constituent in many local investors’ portfolios.

In April this year, data from Holdings suggested local active manager Didner & Gerge fully sold out of holdings that previously were in its Aktiefonden equity fund.

And in a podcast broadcast by Dagens Industri in mid-April, Carnegie’s Swedish equity manager Simon Blecher suggested that the company CEO could be out within a couple of years, and that there were not enough hard questions being asked by board members of the direction of the company. (

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