H&M reports surprise operating profit on cost-cutting measures

STOCKHOLM Fashion retailer H&M reported a surprise operating profit for the December-February period, as cost-cutting measures began to bear fruit despite consumers curbing spending due to soaring inflation and a delayed spring.

In the first quarter of the Swedish group, the Swedish group's operating profit was 725 million Swedish crowns $69.73 million against the previous year's profit of 458 million crowns and a mean loss of 1.10 billion, according to a Refinitiv poll of analysts.

H&M reported an operating profit margin of 1.3 per cent, up from 0.9 per cent a year ago.

In early trading, the shares of H&M went up more than 7 per cent.

Helena Helmersson said in a statement that the company has taken further steps towards the goal of an operating margin of 10 per cent already next year. H&M wants shareholder approval to buy back shares of up to 3 billion crowns, but said the board of directors would wait to see how the company develops before deciding whether to use the authorisation. H&M said it acquired the remaining shares of its Sellpy second-hand clothing platform, and that it's valuation of the fully owned company boosted earnings by about 1 billion crowns. H&M had ownership of 79.84 per cent of Sellhelp AB, which owns the Sellpy platform.

While H&M showed signs of bringing its costs under control, it still struggled to compete with big rival Inditex, owner of Zara and other brands, as well as rapidly expanding fast fashion online retailers such as SHEIN and Temu.

Helmersson said that the changes we have made in recent years are beginning to have an effect, as the external factors that affect purchasing costs continue to improve, work on the cost and efficiency programme is proceeding at full speed and the external factors that influence purchasing costs continue to improve.

In March, net sales were expected to increase by 4 per cent in local currencies compared to the corresponding period last year, according to H&M. It is a slight acceleration after sales for the first quarter were up 3 per cent from last year, but lags the competition.

This is a softer trend than we've seen from other retailers eg Inditex, RBC analyst Richard Chamberlain said in a note.

H&M's shares have risen 9.5 per cent so far in 2023, while Inditex has gained 19.7 per cent.