H&M increases profit by 61% despite moderate sales growth

H&M increased net profit by 61% in the first nine months of the year (from December to August), to 7,147 million Swedish crowns (610 million euros). This considerable advance contrasts with a rise in sales of just 8%, to 173,385 million crowns (150 million euros), but it is a positive sign of the impact of the plan launched after the pandemic to reduce costs and which, according to the company, is being executed "at full speed". Shares were up nearly 5% mid-session.

The company maintains its objective of increasing its operating margin to 10% next year. In the third quarter it stood at 8%, compared to 2% in the same period of the previous year, according to the results published on Wednesday and in which H&M has prioritized profitability and inventory management to sales.

The company attributes part of the increase in net result to the fact that the basis on which it is compared is greatly affected by the extraordinary costs of exiting the Russian market after the invasion of Ukraine in 2022. Provisions to cover the exit were 2.100 billion kroner (180 million euros). In this sense, the operating result grew by 60%, but discounting these extraordinary charges of last year the increase was 26%. Gross margin, meanwhile, fell to 50.3%, compared to 51.1% in the previous year.

"In times of high inflation, where the cost of living of households is rising significantly, it is more important than ever to offer customers the best price and unbeatable value for money," said Helena Helmersson, CEO of the firm. "Our top priority remains the customer offering, where progress is made in improving the assortment and customer experience, along with further integration of the two channels," added H&M.

The start of the autumn season is, however, complicated. The company has indicated that sales fell by 10% annually (measured in local currencies) due to the late arrival of the cold, which has caused little interest among its customers to buy warmer clothes. However, its main rival, Spain's Inditex, reported on September 13 that in the previous month (from August 1 to September 11) the group's sales, already with the new collections, had grown by 14%. "The September data should be understood in a context marked by unusually warm weather in several of the company's markets in Europe, which has had a substantial negative impact on sales," the Stockholm-based group said.

H&M, which operates under the brands H&M, Cos, Weekday, Monki, H&M Home, &Other Stories, Arket, Afound and Sellpy, distributes its products in 4,375 stores worldwide, after reducing its network by ninety stores compared to a year ago, including 75 in Russia and Belarus.

For the coming months, the company predicts "omnichannel growth" and highlights in recent months the opening of the first physical store of Cos in Mexico and Arket in Switzerland. This brand, launched by H & M in 2017, will arrive in Spain in 2024 and its stores sell both its own and third-party clothing.

In addition, H & M has launched a share buyback program with which it intends to acquire up to 3,000 million Swedish crowns (260 million euros) in securities until next March.

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