H&M profits soar 40% in Q3 despite muted sales
The group said an improved customer offering, improved gross margin and good cost control have contributed to the profit surge in the quarter
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H&M has seen operating profits rocket by 40% to SEK 4.914bn (£389m) in its third quarter, despite sales only rising by 2% to SEK 57,017m (£4.51bn) over the period.
The lower sales came as the group operated from 4% fewer stores at the end of the quarter compared with last year.
Nonetheless, the group said an improved customer offering, improved gross margin and good cost control have contributed to the profit surge in the quarter.
Its gross margin rose to 52.9% while selling and administrative expenses fell by 5% to SEK 25.1bn (£1.9bn), down from SEK 26.6bn (£2.1bn) the prior year.
In addition, its product mix and a faster stock turnaround reduced inventory by 9% year-on-year, which helped to ease margins.
In its latest update, H&M also noted it is getting positive feedback from the upgrade of its digital store that was rolled out earlier this year, which “made an important contribution to the profitable growth in the quarter”.
It added it continues to focus on updating a large part of its stores globally, with improvements in layout, presentation and tech.
CEO Daniel Ervér said:“We are taking further steps in the right direction. Through a stronger customer offering, an improved gross margin and good cost control, we have strengthened operating profit by 40% compared with the same quarter last year while also having reduced the stock-in-trade.”
Robyn Duffy, consumer markets senior analyst at RSM UK, added: “Upgrades to both the product range and the physical and digital shopping experience are strengthening H&M’s brand appeal and supporting steady sales in a challenging market. Initiatives to accelerate product creation and better match supply with demand are also sharpening its competitive edge in fast fashion.
“Store rationalisation is bearing fruit too. With 4% fewer stores than last year, H&M is concentrating investment in prime flagship locations, reinforcing its omni-channel offer and brand presence. Overall, H&M is showing clear progress on its turnaround journey. The next challenge will be sustaining profitability while continuing to invest in product, customer experience, stores and digital capability to reinforce its global position.”
