H&M needs to offload $4 billion in unsold clothes

The Swedish fashion company said Thursday that the value of its global unsold inventory ballooned in the most recent quarter to 36 billion Swedish kronor ($4 billion). That's a 13% increase over the previous year.

The mass of unsold clothes, which has grown over a period of years due to weaker than expected sales growth, helped drag down profits by 28% in the first half of 2018.

"The inventory issue has now developed into a significant problem for the company," said Adam Cochrane, an analyst at Citi.

MORE: http://money.cnn.com/2018/06/28/investing/hm-unsold-clothes-profits/index.html

Facts: H&M competes with Zara, La Chapelle ,  Forever21, TopShop, and C&A in fast fashion market. 

2. Total sales of H&M for 2017 is 28 billion USD, Zara/Inditex 's total sales for 2017 is 25.3 billion USD,  Neck and neck competition 28B vs 25B 

3. Total unsold inventory that has been piled up for the last 4 years is 4 billion which is 1/5th of total yearly revenue. Inventory that is sold @ 4 billion costs around 1 billion to manufacture. 

4. H&M ranked by total sales is #1 in the fast fashion market. 

5. H&M's gross profit sits around 54% and operating margin around 19%.  (operating profit for 2017 would be 5.6 billion USD ) 

6. Donating the 4 billion USD unsold inventory to charity would be similar to crossing off 1 billion in manufacturing costs (not counting time on market costs) 

7. Here is a 2013-2018 Chart of H&M on the Swedish market

Analysis: The facts probably gave a clearer picture more than any mental analysis, 4 billion USD in unsold inventory is non-substantial to H&M.  

Conclusion: Buy H&M has been weak on the Swedish market lately. Great company.