H&M Is Hurting Too

LONDON -- Cheap, but not cheap enough. Business should be booming for Hennes and Mauritz, the retailer known for its chic-but-cheap clothing, as shoppers seek out bargains in the still sluggish economic climate. But its latest sales figures tell a different story.

The Swedish retailer said Wednesday that same-store sales fell 5% in June compared to a 2% drop in the same period last year, as its business model took a hit from the consumer downturn.

Shares of H&M ( HNNMY - news - people ) fell 1.5%, or 6.00 Swedish kroner (7 cents), to 384.00 Swedish kroner ($49.19) during morning trading in Stockholm.

"Looking at the last 12 to 18 months sales figures it becomes quite obvious that H&M is being affected as much as everyone else by the downturn in consumer demand," said Niklas Ekman, an analyst at Carnegie Investment Bank in Stockholm. "Many people would expect that because of their low-price profile the company would be doing better. That's not the case."

Ekman said the company has been extremely successful in managing its inventories but its typically high turnover was damaging profits as consumers cut down on spending. "H&M has a higher sales density per square meter. It sells more than double per square meter compared to its rivals so when sales drop they drop from a higher comparative basis," said Ekman.

"H&M has been at the forefront of the wear-and-tear culture offering clothes that consumers replace very quickly. "But spontaneous shopping is happening less now and shoppers are buying less," Ekman added.

Shares of H&M ( HNNMY - news - people ) fell 1.5%, or 6.00 Swedish kroner (7 cents), to 384.00 Swedish kroner ($49.19) during morning trading in Stockholm.

"Looking at the last 12 to 18 months sales figures it becomes quite obvious that H&M is being affected as much as everyone else by the downturn in consumer demand," said Niklas Ekman, an analyst at Carnegie Investment Bank in Stockholm. "Many people would expect that because of their low-price profile the company would be doing better. That's not the case."

Ekman said the company has been extremely successful in managing its inventories but its typically high turnover was damaging profits as consumers cut down on spending. "H&M has a higher sales density per square meter. It sells more than double per square meter compared to its rivals so when sales drop they drop from a higher comparative basis," said Ekman.

"H&M has been at the forefront of the wear-and-tear culture offering clothes that consumers replace very quickly. "But spontaneous shopping is happening less now and shoppers are buying less," Ekman added.