H&M expects profit to surge past analysts' expectations

Stockholm

HENNES & Mauritz (H&M) reported a return to profit that surged far past analysts' expectations, a bullish sign for purveyors of fast fashion.

The Swedish clothing retailer estimated that pre-tax earnings reached about two billion kronor (S$311 million) in the three months through August, based on preliminary results. That's eight times the average analyst estimate and almost double the highest forecast. The shares rose as much as 13 per cent in Stockholm on Tuesday morning.

H&M attributed the earnings to revenue exceeding its expectations, well-received collections and more sales at full price. The report soothed concern about H&M's perennial issue with a buildup of inventory.

Low-cost fashion retailers such as Primark have been gaining market share as consumers return to shops in search of casual wear for working from home.

Sales fell to 50.9 billion kronor, a 16 per cent decline in local currencies. Analysts expected 50.8 billion kronor. The quarter improved as H&M began the period with 900 of 5,000 stores temporarily closed. By the end of August, all but 200 were open.

H&M will report full earnings on Oct 1, when investors will get more details on whether it managed to sell more of its unsold inventory.

Stock-in-trade was at a record level in relation to annual sales in the second quarter, at 40 billion kronor. Analysts will probably raise their expectations after the results, though the consensus for a significant recovery in sales over the coming six to nine months is too optimistic, Morgan Stanley analysts wrote.

Shares of Inditex, which is scheduled to report results on Wednesday, rose as much as 5.1 per cent. BLOOMBERG