H&M shares jump 11% as summer collection boosts profit

H&M shares hit a 16-month high on Thursday (Jun 29) after its second-quarter profit beat estimates, with its summer collection doing well as warmer weather arrives in Europe.

Shares in the world’s second-biggest fashion retailer jumped 11 per cent to hit their highest level since February 2022. They were last trading at 174.7 Swedish crowns.

H&M, which has lagged Zara owner Inditex, has sought to raise its fashion appeal and boost its higher-priced brand Cos, targeting shoppers less vulnerable to the rising cost of living as fast-fashion giant Shein takes market share with less-expensive clothes.

H&M increased sales in many markets despite a squeeze on consumers’ spending ability and “unfavourable weather”, chief executive officer Helena Helmersson said, adding that its summer collection got off to a good start as temperatures rose across northern Europe.

Sales from Jun 1 to Jun 27 were up 10 per cent from a year earlier, H&M said, a good sign for the start of its third quarter.

A sharp drop in inventory levels was another positive surprise, said Cedric Rossi, next-gen consumer analyst at Bryan Garnier in Paris. “I was really surprised to see that, without any higher promotional activity – because markdowns were in line with last year – H&M decreased its inventory position,” he said.

H&M’s inventory was at 16.7 per cent of rolling 12-month sales on May 31, down from 19.2 per cent a year earlier. It blamed high raw material and freight costs for the lower margin, but said these factors had “pivoted from being negative to being positive”, indicating easing inflationary pressure.

The group’s operating profit margin in the second quarter was 8.2 per cent, down from 9.2 per cent a year earlier, while it reiterated its goal of a 10 per cent margin next year, which analysts have said could be hard to reach.

Analysts said the results showed that cost-cutting measures were starting to bear fruit.

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H&M slips out of fashion as first-quarter sales lag

Last year, H&M announced layoffs and other cost cuts that it said at the time would help it save money from the second half of 2023 onwards. It also closed a total of 303 stores across its brands in the year to May 31, and said its new store openings would mainly be in “growth markets” while it would close stores mainly in established markets.

“The external factors that affect our purchasing costs continue to improve, work on the cost and efficiency programme is proceeding at full speed, and much of the work that we have done in recent years is starting to bear fruit,” Helmersson said.

Operating profit in the Swedish group’s March-to-May second quarter was 4.74 billion kronor (S$595.3 million). This was down from 4.98 billion kronor a year earlier, but above the 4.07 billion kronor forecast by analysts in a Refinitiv Eikon poll.