H&M, the fashion retailer, posted an unexpected operating profit for the December-February period, owing to cost-cutting initiatives. The sales of its spring collection were affected by a cold spell, and shoppers were deterred from buying the clothing. However, the company’s stock rose by 8 percent in the early trading due to short positions on the stock.
The Swedish company’s fiscal first quarter saw an operating profit of 725 million Swedish crowns, versus 458 million crowns a year ago. It was a pleasant surprise, as a Refinitiv poll of analysts had predicted a 1.10 billion crown loss. The operating profit margin was 1.3 percent, up from 0.9 percent. Helena Helmersson, H&M’s CEO, was confident of a gross margin recovery over the year and aimed for a 10 percent operating margin in the following year.
The cold weather in many markets where H&M operates impacted the March sales figures. The company’s net sales for March are expected to increase by 4 percent, compared to last year. This is lower than its competitors, such as Inditex, owner of Zara and other brands, and the rapidly expanding online retailers SHEIN and Temu. Analysts from Credit Suisse acknowledged that it would be hard for H&M to hit the 10 percent margin by 2024.
The earnings were boosted by an upwards re-valuation of its stake in its majority-owned Sellpy second-hand clothing platform. Sellpy is now part of H&M, in which the company still holds a 79.84 percent stake. H&M’s shares have increased by 9.5 percent in 2023, while Inditex has surged by 19.7 percent. -Reuters
Fashion retailer H&M reported a surprise operating profit for the December-February period as cost-cutting measures started to bear fruit, despite consumers curbing spending and a cold spell holding back sales of its spring collection.
While H&M showed signs of bringing its costs under control, it still struggled to compete with major rival Inditex, owner of Zara and other brands, as well as rapidly expanding fast fashion online retailers such as SHEIN and Temu.
Unusually cold weather in many of H&M’s key markets held shoppers back from buying spring clothing, the company said, denting its March sales figures.
Still, shares in the company jumped by 8 per cent in early trading after the results – a move traders said was amplified by short positions on the stock.
Operating profit in the Swedish group’s fiscal first quarter was 725 million Swedish crowns (€64 million) against a profit of 458 million crowns a year earlier. A Refinitiv poll of analysts expected a 1.10 billion crown loss.
H&M’s operating profit margin was 1.3 per cent, up from 0.9 per cent a year earlier and chief executive Helena Helmersson said the company was confident of a gross margin recovery over the year.
“The start of the year shows that we have taken further steps towards the goal of achieving an operating margin of 10 per cent already next year,” Helmersson said in a statement.
But analysts at Credit Suisse said it would be “very challenging” for H&M to return to a 10 per cent margin in 2024.
H&M said net sales for March were expected to increase by 4 per cent in local currencies compared with the corresponding period last year. That’s a slight acceleration after sales for the first quarter were up 3 per cent from last year, but lags the competition.
“Performance was weighed by weather and could, therefore, be recovered as warmer temperatures land, but of course this result is in stark contrast to the current trading reported by Inditex,” JP Morgan analyst Georgina Johanan said.
H&M said an upwards re-valuation of its stake in its majority-owned Sellpy second-hand clothing platform had boosted earnings by about 1 billion crowns. Sellpy, in which H&M still holds a 79.84 per cent stake, is now part of the group.
H&M’s shares have risen 9.5 per cent so far in 2023, while Inditex has gained 19.7 per cent. -Reuters
