Fashion retailer H&M posts surprise Q1 profit as cost-cutting bears fruit

March 30, 2023 09:13 AM CEST | By Reuters
Image source: Reuters

By Marie Mannes and Helen Reid

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

Operating profit in the Swedish group's fiscal first quarter was 725 million Swedish crowns ($69.73 million) against a profit of 458 million crowns a year earlier and a mean forecast of 1.10 billion loss in a Refinitiv poll of analysts.

H&M reported an operating profit margin of 1.3%, up from 0.9% a year earlier.

Shares in H&M were up more than 7% in early trading.

"The start of the year shows that we have taken further steps towards the goal of achieving an operating margin of 10% already next year," CEO Helena Helmersson said in a statement.     H&M is seeking 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 in its Sellpy second-hand clothing platform, and its valuation of the fully owned company boosted earnings by about 1 billion crowns. H&M had owned 79.84% 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 major rival Inditex, owner of Zara and other brands, as well as rapidly expanding fast fashion online retailers such as SHEIN and Temu.

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

H&M said net sales for March were expected to increase by 4% in local currencies compared with the corresponding period last year. That's a slight acceleration after sales for the first quarter were up 3% 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% so far in 2023, while Inditex has gained 19.7%.

H&M shares lag rivals

($1 = 10.3975 Swedish crowns)

(Reporting by Marie Mannes and Helen Reid; editing by Terje Solsvik and Gerry Doyle)

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