Oct 3, 2019
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H&M rides high as turnaround gathers pace, Q3 and September look good

Oct 3, 2019

H&M released its nine-month and Q3 results on Thursday and the company seems to be back on a strong path after some tough times not many seasons ago, with the numbers beating analyst predictions.

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In the nine months to August 31, net sales rose 11% to SEK171 billion (€15.7bn/£14bn/$17.3bn), a rise of 6% currency-neutral. “The ongoing transformation work has contributed to continued positive sales development with more full-price sales, lower markdowns and increased market share,” it declared. Profit after financial items rose 6% to SEK11.988 billion.

Meanwhile, Q3 itself seemed even stronger with sales up 12% to SEK62.57 billion, or up 8% in local currencies. The company said the success came on the back of “well-received summer collections”. And online sales in the third quarter increased by as much as 30%, or 25% in local currencies.

The firm’s Q3 gross profit rose 13% to SEK31.8 billion and this corresponded to a gross margin of 50.8%, up from 50.3%. Profit after financial items increased by 25% to SEK 5 billion.

And the company has plenty to look forward to as well. The H&M brand was “successfully” launched on India's leading e-commerce platform Myntra in August, which puts it in front of a massive consumer group and the firm said the “reception has exceeded the company’s high expectations”.

Meanwhile, although sector peers have bemoaned the warm weather in many markets during September, H&M said its sales in local currencies last month increased by 8% year-on-year.

It added that the integration of its online and physical stores continues at full speed and it “continues to actively optimise the store portfolio through increased consolidation in established markets while continuing its expansion in growth markets.” That means the net addition of new stores for the year will be around 120, which is less than it had previously expected.

So what did CEO Karl-Johan Persson have to say? “Well-received summer collections and increased market share show that we are on the right track with our transformation work to meet customers’ ever-increasing expectations,” he explained. “The continued development of more full-price sales and reduced markdowns contributed to a 26% increase in operating profit in the third quarter, all while maintaining a high level of activity in our transformation work.”

And he added that growth was good in many markets, including the US where sales in local currencies rose 19%. In Poland they rose by 20%, Italy by 15%, Russia by 12% and India by 29%. Sales also developed well in South America, up as much as 32% in Chile alone.

But it wasn’t all good news and “things were a bit tougher in some of our franchise markets due to challenging macro factors,” the CEO said, but he gave no details.

Overall, the reception was positive to the figures and the firm’s shares rose as much as 7% in early trading.

Steve Miley, a senior market analyst at www.asktraders.com, said the numbers “provide optimism that the current transformation plan is reaping reward. These are exactly the figures that investors want to see. They provide solid evidence that H&M’s transformation is on track after experiencing years of falling profits. With changing consumer habits and tougher competition, it’s a challenging climate to be trading in. Yet H&M [is] showing all the right signs that [it’s] on the path to recovery.”

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