Chic and cheap Swedish retailer Hennes & Mauritz (HNNMY) — more commonly known as H&M — jumped more than 4% yesterday to send shares to a new all-time high.
The catalyst: The retailer beat expectations for August sales — a notable feat considering broader retail’s weakness of late. H&M same-store sales rose 4% last month, besting analyst expectations of a 3.8% improvement.
H&M and the broader markets both hit lows in late June, but the retailer’s 24% comeback since then is around triple the S&P 500’s gains over the same time period.
However, H&M is lagging the broader market year-to-date and during the past 52 weeks. On top of that, the retailer comes with a decent amount of fine print that prospective investors should be aware of.
Here are four things you need to know about the climbing stock:
European Recovery: Hennes & Mauritz has a global presence, but began and gets the bulk of its sales from Europe. In fact, H&M is the continent’s second largest retailer. European Central Bank President Mario Draghi recently said that the eurozone’s economy “remains fragile” and that a recovery is “in its infancy.” Still, European stocks closed at their highest levels in more than five years yesterday, and many believe the battered region has more room to run.
U.S. Struggles: While the company’s scattered presence diminishes the importance of the U.S., the region still is H&M’s second-largest in terms of sales and locations. The problem with that is twofold: One, there has been lots of chatter about weak consumer sentiment here in the states, especially in the wake of weak second-quarter numbers from Walmart (WMT), Macy’s (M) and others. Secondly, H&M was notably delayed in launching e-commerce in the U.S. The move was delayed several times and just launched last month. While it’s indeed a case of better-late-than-never and could be a boon to its business now, some have suggested the delay had already sent many fashionistas to e-commerce rivals.
Toss-Away Trends: H&M is best-known for its quick turnaround on runways styles, which are offered at cheap prices, similar to rival Forever 21. Global head of sustainability Helena Helmersson told Forbes earlier this year that the days of short-lived trends were fading. The good news: The company’s strong sales seem to suggest otherwise. Of course, Helmersson also said the company was trying to focus more on quality, but that transition could be tricky, as it could reduce sales if consumers update their wardrobes less frequently, and could take away the store’s price appeal. Finding the right styles, prices and promotions is no easy feat, especially for fickle teens — just ask struggling, established names like American Eagle (AEO).
Labor Issues: One reason H&M is able to offer such low prices: cheap labor. In fact, the retailer has come under scrutiny for inhumane working conditions, which allegedly include child labor and very low pay. The company did eventually sign the Bangladesh factory safety plan following a building collapse in the region, but that doesn’t mean more controversy couldn’t be around the corner.
As of this writing, Alyssa Oursler did not hold a position in any of the aforementioned securities.
