H&M Posts Surprise Profit In Q1 Due To Cost-Cutting

(CTN News) – Fashion retailer H&M has recorded a surprising operating profit for the December-February period, despite consumer spending being curtailed due to high inflation and a delayed spring due to cost-cutting measures.

There was an operating profit of 725 million Swedish crowns ($69.73 million) in the Swedish group’s fiscal first quarter, down from a profit of 458 million crowns a year earlier and a mean forecast of a loss of 1.10 billion crowns predicted by analysts surveyed by Refinitiv.

According to H&M’s annual report, the company’s operating profit margin increased to 1.3% from 0.9% in the previous year.

H&M’s shares were up more than 7% in the early trade on Thursday morning.

Having started the year with a positive outlook, it is clear that we have taken further steps towards achieving a 10% operating margin by the end of 2012,” CEO Helena Helmersson said in a statement.

It is expected that H&M will seek shareholder approval for a share buyback amounting to up to 3 billion crowns, but the board of directors is waiting to see how the company develops before deciding whether to use this authority or not.

H&M has announced that it has acquired the remaining shares in its Sellpy second-hand clothing platform, and with the valuation of the company that it now owns, earnings grew by about 1 billion crowns. Sellhelp AB, which owns the Sellpy platform, has 79.84% of its shares owned by H&M.

Even though H&M showed signs of managing its costs, it still found it difficult to compete with its major rival Inditex, owner of Zara and other brands, as well as rapidly expanding fast fashion online retailers like Shein and Temu, which are increasingly entering the market.

In Helmersson’s assessment, “the external factors that influence purchasing costs continue to improve, and the work on the cost and efficiency programme is progressing at full speed, and many of the changes we have made in the last couple of years are already taking hold,” he said.

Compared with the same period last year, H&M’s net sales were projected to have increased by 4% in local currencies for the month of March, according to the company.

There has been a slight acceleration in sales after they increased by 3% over the first quarter of last year, but still lag behind the competition in terms of growth.

RBC analyst Richard Chamberlain said in a note on Thursday that this appears to be a softer trend than we’ve seen from other retailers, such as Inditex.

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