H&M stock surges as Q1 profit beats estimates on fewer discounts

Stockholm

HENNES & Mauritz AB shares surged after the ailing Swedish clothing retailer reported a first-quarter profit that beat expectations on lower clearance sales.

The stock rose as much as 16 per cent after the company pulled back on discounts, compared with the fire sale it held a year earlier. The gains may have been spurred by "short squeezes", when a bit of good news spurs investors who have bet against the stock to rush to reverse positions. The shares have still lost more than half their value since their 2015 peak.

The company showed some signs of coming to grips with increased competition from online retailers like Zalando SE and low-price competitors including Primark. Until now its efforts have been plagued by logistics and distribution mishaps, fashion misjudgments and weak sales in physical stores. H&M has been introducing garments at lower prices to try to avoid massive discounts later.

"It's still a shaky market," said chief executive officer Karl-Johan Persson said. "We're still in a transition period, but we believe in gradual improvement."

Pre-tax profit of 1.04 billion Swedish kronor (S$152 million) in the three months through February was the smallest quarterly total in 18 years, but it beat analysts' estimates for 678 million kronor. This is the seventh consecutive quarterly earnings decline. BLOOMBERG