H&M Trims Inventory To Boost Shares

As a result of the company's continued efforts to reduce its inventory buildup that has been weighing on the company for the last six years in order to reduce its costs, shares of Swedish clothing retailer Hennes & Mauritz AB rose the most in over a decade on Friday.

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After Intel reported that its inventory levels are at their lowest level since 2020, the stock of the company rose by about 19% as a result of the company's report, which led to an increase in the value of its stock market of almost $3 billion.

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As a result of the $4 billion pile of unsold clothes that Helena Helmersson, the Chief Executive Officer of the company, faced, it has been forced to heavily discount the clothes in order to sell more. The company recently released a report in which analysts predicted a higher profit margin for the second quarter of the year than what was actually achieved. Rebates remained flat during the first quarter according to the report.

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Perhaps the stock reaction of H&M can be categorized as a short squeeze, a phenomenon that occurs when short traders, in order to close their short positions, unexpectedly turn around and buy the stock in order to close out their short positions. Short interest in the stock of H&M is evident in the fact that almost 10% of the free float of the company is comprised of shares on loan.

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According to the latest figures, H&M's inventory at the end of the first quarter made up 17.9% of the company's sales, up from 21% at the end of the previous quarter. The company aims to reach a level of 13% to 14% by the end of the next period. 

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As Helmersson said in a recent interview, this would take time to happen. "We keep a close eye on new developments," he said, "but we cannot predict precisely when this will happen.".

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In the first quarter, H&M's profits unexpectedly increased when it combined the results from Sellpy, a second-hand clothing platform. Analysts had expected a loss in the first quarter due to its consolidation of Sellpy's results. In addition to Sweden, Germany, and Austria, H&M also offers service in 24 other European markets, with a total accounting gain of 1 billion kronor ($96 million). As the company's assets and results have been included in H&M's, they have gained an accounting gain of 1 billion kronor ($96 million).

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Achieving the year's revenue target

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Since Sellpy's revenue increased by 85% last year, and H&M has announced that it will surpass its sales and emission targets, it is predicted that H&M's sales will exceed 1 billion kronor in 2023. According to Helmersson, the platform assists H&M in meeting its sales and emission targets. 

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We discussed how to double turnover by 2030, cut carbon emissions by half, and transform the company into a circular business model in our recent meeting.

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As outlined above, H&M's Spanish competitor, Inditex SA, has outperformed its UK competitor, Primark UK, going up by more than 40% over the past year in comparison to H&M which has fallen by over 40% over the same period of time. The company's owner recently announced that the company's operating profits through the end of January had increased by 29% compared to the same period last year. There are also plans for the company to invest almost double the amount of money this year as compared to its Swedish competitors.

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H&M's CEO Helmersson has said that the company is on track to achieve its goal of increasing its operating margin to 10% by the end of the fiscal year, making sure investors that the company is serious about achieving its goal.

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Since the Swedish krona is weaker than the American dollar, H&M will have difficulty improving profitability as it will be more expensive to buy garments from Asia, which are usually priced in dollars.

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As the year progresses, the company forecasts improving buying conditions, although buying conditions will remain relatively negative through the second quarter.

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Despite currency fluctuations and a year of H&M's first quarter, revenues at H&M are rising by 4% year-over-year in March, compared to the same period last year. As the retailer explained, many countries where the weather has been very cold have been unable to start their Christmas shopping season on time. However, in areas where the weather has become more pleasant, the collections have been well received.

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