By Dominic Chopping


STOCKHOLM--Hennes & Mauritz shares plunged Thursday after it said that sales at the start of June were hurt by bad weather and warned that it would be harder to hit a key target amid increasing challenges.

Sales in June--the first month of the fast-fashion retailer's third quarter--are expected to fall 6% in local currencies on the year after changeable weather hit sales early in the month, though shoppers returned at the end of the period as the weather normalized, the company said.

Analysts at HSBC had expected flat to negative mid-single-digit sales growth in June, mainly due to the 10% sales growth H&M registered in June last year when weather was favorable.

At 0953 GMT H&M shares were down 13% at SEK170.10.

The company is targeting a 10% operating margin in fiscal 2024, an ambition set by former Chief Executive Helena Helmersson, who unexpectedly stepped down earlier this year.

The target remains intact, but H&M noted the conditions to achieve it have become tougher as raw materials and currencies are expected to bite more than expected during the second half.

"The real challenge is that 3Q started very poorly," Bernstein analyst William Woods said in a note to clients. "Management have also softened their tone on the 10% margin target and given their excuses early."

Woods said that H&M needs to see sales pick up significantly in order to achieve the 10% margin.

Analysts have for some time questioned the attainability of reaching the target this year as H&M struggles to gain sales traction amid lower consumer buying-power, rising costs and fierce competition from low-cost, fast-fashion online rivals, such as Shein as well as H&M's more traditional rival, Zara.

Zara-owner Inditex recently reported strong sales growth in May and the first days of June, and H&M's Erver has made growing sales a priority at the Swedish group. He is investing in the supply chain to bring more manufacturing closer to its major markets to make the company more nimble when it comes to logistics and purchasing, while upgrading stores and boosting digital services.

Currently H&M still counts Asia as a major sourcing region though and Erver said the company is continuing to plan for extended transport times in connection with shipping traffic disruption in the Red Sea.

"The most important prerequisite for achieving our goal is that sales growth is further strengthened in the second half of the year compared with the second quarter increase," Erver said.

H&M is conducting an efficiency program to save 2 billion Swedish kronor ($189.1 million) a year as it works toward lowering prices for customers and achieving its margin target. The remaining parts of the program were implemented in the first half and the associated costs have now essentially been taken, the company said.

The company reported a net profit of SEK5.01 billion for the quarter to May 31 compared with SEK3. billion a year earlier as sales rose 3.5% to SEK59.61 billion. Analysts polled by FactSet had expected net profit of SEK5.34 billion on sales of SEK59.6 billion.

H&M reported an operating margin of 11.9% in the quarter, versus 12.9% expected by analysts at Jefferies.


Write to Dominic Chopping at dominic.chopping@wsj.com


(END) Dow Jones Newswires

06-27-24 0653ET