H&M posts first quarterly profit rise in two years
STOCKHOLM: Hennes & Mauritz AB (H&M) posted its first rise in quarterly pre-tax profit in more than two years yesterday as the world’s second-biggest fashion retailer said its drive to meet rapid changes in the market were on track.
H&M has been spending heavily on reviving its business after years of falling profits and growing inventories due to slowing sales at its core H&M branded stores.
Pre-tax profit for the June to August quarter beat expectations, rising to 5.0 billion crowns ($507 million) from 4.01 billion a year earlier.
Analysts had on average forecast a rise to 4.93 billion crowns, Refinitiv data showed.
The increase was the Swedish retailer’s first since the second quarter of 2017.
“The continued development of more full-price sales and reduced markdowns contributed to a 26% increase in operating profit in the third quarter, all while maintaining a high level of activity in our transformation work,” chief executive Karl-Johan Persson said in a statement.
Profit growth was also helped by accelerating sales growth.
H&M had said on Sept 16 that sales growth in the quarter was the steepest in three years buoyed by wellreceived summer ranges and increased market share.
But analysts cautioned that investment might again squeeze profit margins, and shares fell on that day.
H&M’s gross margin actually widened to 50.8% from 50.3%, and its operating profit margin rose to 8.0% from 7.1%.
Zara owner Inditex SA, H&M’s biggest rival, has been weathering challenges in the sector better than most yet its first-half results on Sept 11 revealed disappointing margin growth that overshadowed a strong rise in sales.
Smaller brick-and mortar rival Forever 21 Inc filed for bankruptcy on Sept 30.
H&M’s inventories increased 9% to 42.0 billion crowns at the end of its third quarter, equivalent to 18.5% of sales.
However, H&M said that, measured in local currencies, they shrank by 1% while the composition of the stock had kept improving.
The group in 2018 announced a target to cut inventories to 12-14% of sales by the end of 2020.
Persson yesterday told analysts and media on a call that that range was still reachable, but did not say when.
Markdowns decreased for a fourth straight quarter, by two percentage points in relation to sales.
H&M in June had predicted a 1.5 percentage point decrease. It unusually did not provide an outlook for markdowns in the current quarter.