H&M Finally Took The Right Road.

Hennes&Mauritz AB unsold clothes have been on the increase.

According to the retailer, its inventory rose from $3 billion 900 million last year to $4 billion 400 million in May 31st.

But aside from those unwelcome Strapless dresses and jeans shorts, nor mentioning the strong dollar and falling pre tax profits on the offline investment, H&M finally showed signs of moving in the right direction.

First, the accumulated inventory becomes more controllable. Compared with 18.6% at the end of the first quarter, the inventory at the end of the second quarter was 18.3% of sales. In fact, H&M said that the reduction in demand for excess inventory discounts should increase the gross profit of the third quarter by 1.5 percentage points.

Second, H&M is taking measures to upgrade, such as upgrading the same name chain store to the brand store such as Arket and Other Stories, which is more in line with customer needs.

According to H&M, sales in local currency are expected to be 12% higher than in June. When the news came out, the company's share price rose by about 10%.

But there are also challenges, for example, investors are faced with radical risks.

H&M must maintain recent demand growth. If the current boom continues, this is not impossible, but it can not be guaranteed.

Analysts at the Royal Bank of Canada (RBC) also pointed out that this year's sales may be pleasantly surprised compared with last year's impact on the implementation of the new logistics system.

H&M also faces the risk of foreign exchange environment, because its current stock is bought when the dollar is strong. Compared with rival Inditex, H&M purchases more products from Asia, so the upgrade of the exchange rate war brings more risks to it.

And the competition is still very serious. Primark, Associated British Foods Plc, is continuing to expand to Europe and the United States, and is also offering more sophisticated high-end stores.

So far, H&M's share price has risen 25% this year, and its forward price earnings ratio is close to Inditex.

As I said, all the practices of H&M are correct. Investing in emerging brands is a necessary condition for expanding business, and the group is now more concerned about its core industries, after all, with Primark and Zara.

In view of the fact that H&M Group Chairman Stefan Persson and its family have about half of the shares, it is impossible to exclude the possibility of takeover.

We must continue to maintain the growth of sales, and at the same time, we must substantially reduce our inventory. Only in this way can we prove that H&M has finally come to a low ebb.

Authors: Andrea Felsted; Editor: Jennifer Ryan.

This column does not represent Bloomberg LP and its owner's opinion; the views expressed in Op-Ed represent only the author's personal views and do not represent the views of The Business of Fashion.