H&M profits impress despite September sales slowdown

By Helen Reid

STOCKHOLM (Reuters) – H&M reported a pick-up in quarterly profit margins on Wednesday, boosting optimism about its turnaround efforts even as the fashion retailer blamed unusually hot weather in many of its European markets for delaying the autumn shopping season.

H&M, whose biggest rival is Zara owner Inditex, said September sales would fall by 10% year-on-year measured in local currencies.

“It’s clear that more heavy autumn product types are the ones where we see a delay in selling,” H&M CEO Helena Helmersson said in an interview, adding: “We know that we can’t draw big conclusions after one month.”

Tailored suits, denim, fine knits and blouses are among the most popular styles so far this season, she added.

The predicted sales drop compares with Inditex reporting a 14% increase in sales between Aug. 1 and Sept. 11.

“If the sales at your competitor basically go up by 14% with the same weather, that tells you something, to my mind,” said Vera Diehl, portfolio manager at Union Investment, which holds shares in H&M and Inditex.

Still, H&M’s shares jumped by more than 5% in early trade as profits in the June-August quarter rose and the company stuck to a goal of lifting its operating margin to 10% next year, saying its cost-cutting programme was continuing “at full speed”.

H&M’s margin reached 8% in the third quarter, from 2% a year earlier, as the retailer said it had prioritised profitability and inventory rather than sales. The 10% target is “challenging but achievable,” Barclays analyst Nicolas Champ said.

Operating profit in the Swedish group’s third quarter jumped to 4.74 billion crowns ($431 million) from 902 million a year earlier. Analysts polled by LSEG had on average forecast a 4.72 billion crown profit.

Last year’s figure included a one off-cost of 2.1 billion crowns for the group’s exit from Russia, which also accounted for four percentage points of the 10% September sales decline.

As cost pressures ease, H&M’s Chief Financial Officer Adam Karlsson said he saw the potential for price cuts, without giving a timeframe.

Shoplifting has increased over the past two quarters, Karlsson said, adding to a string of retailers flagging worsening crime, especially in Britain and the United States.

In China, H&M this month launched on JD.com, one of the country’s biggest e-commerce marketplaces, in a sign the brand is recovering after criticism over its stance on alleged human rights abuses in the Xinjiang region.

It returned to Alibaba’s Tmall e-commerce platform last year.

Helmersson said the JD.com launch was a milestone, but H&M was still “not where it wants to be” in China.

The company said it would start a share buyback programme on Wednesday, planning to buy back up to 3 billion crowns of stock by March 31 next year.

(This story has been corrected to show that H&M launched on, not returned to JD.com this month, in paragraphs 13-15)

(Reporting by Anna Ringstrom and Helen Reid; Editing by Barbara Lewis and Mark Potter)