H&M third-quarter profit beats analysts’ estimates

HENNES & Mauritz ( H&M), Europe’s second-biggest clothing retailer, yesterday reported profit that topped estimates for the first quarter in three as the company pared costs while adding new brands and a US online store.

H&M said net income rose to 4.43-billion krona (R6.89bn) in the three months ended August 31, beating the 4.15-billion krona average estimate of 16 analysts.

The retailer plans to open its first store in SA in 2015 after expanding into Australia next year. The cheap-chic retailer had 2,964 stores at the end of August and stood by its plans to add a net 350 this year.

The Swedish company, which sells imitation leather pants for $9.95 and has signed up supermodel Gisele Bundchen as the face and voice of its fall campaign, is investing in online retailing and new concepts as it chases bigger rival Inditex. H&M did not explain its improved profitability, though analysts said the gains were partly because of lower expenses.

“They’ve had very good cost control and all those initiatives and investments are starting to pay off,” said Soeren Loentoft Hansen, an analyst at Sydbank in Aabenraa, Denmark.

“That’s reflected in better earnings today.”

The company said its gross margin expanded to 58.8% of sales from 58.2% a year earlier. Discounts in relation to sales had a negative effect on the gross margin of 0.2 percentage points compared with a year earlier.

The margin expansion was “likely driven by the anniversary of cost investments”, Exane BNP Paribas analyst Simon Bowler said in a note, referring to past steps taken by the retailer to reduce prices and improve product quality.

H&M said costs in comparable stores were down, as a share of sales and in absolute figures.

these Before yesterday, the retailer had missed earnings estimates in nine of the 12 most-recent quarters, including the previous two, according to Bloomberg data.

H&M is following the example of Inditex by expanding online, while also boosting growth of existing brands.

The retailer would add new online markets next year, while growing brands such as the COS and & Other Stories lines, CEO Karl-Johan Persson said.

H&M reported last week that third-quarter sales increased 11% to 32-billion krona, excluding value-added tax.

Also last week, Zara owner Inditex posted an unexpected rise in first-half profit and said sales growth accelerated since the end of July helped by faster expansion.

H&M last month started an online store in the US after previous delays and has said it would add several new e-commerce markets during the next two years.

The retailer is also expanding its sports offering and earlier this year opened & Other Stories, a chain featuring more accessories.

H&M shares rose as much as 21.1 krona to a record 285 krona and were up 6.5% to 281.1 krona at midday in Stockholm yesterday.