H&M posts first quarterly profit rise in over two years

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© Reuters. FILE PHOTO: An H&M sign is seen at the entrance to an H&M store in Palma on the island of Mallorca© Reuters. FILE PHOTO: An H&M sign is seen at the entrance to an H&M store in Palma on the island of Mallorca

STOCKHOLM (Reuters) – H&M (ST:), the world’s second-biggest fashion retailer, reported on Thursday its first quarterly rise in pretax profit in over two years and said efforts to meet rapid changes in its industry were on track.

H&M has been spending heavily on reviving its business in the face of years of falling profits and growing inventories due to slowing sales at its core brand’s stores amid tougher competition and changing shopping habits.

Its shares have spiked 46% this year, and 58% from the 13-year low seen in 2018, on hopes it is getting back on track. But they are still at just half of their 2015 record level.

Pretax profit in the June through August period beat expectations, growing to 5.0 billion crowns ($507 million) from a year-ago 4.01 billion. Analysts had on average forecast a rise to 4.93 billion crowns, according to Refinitiv data.

The increase was the Swedish group’s first since the second quarter of 2017. Profit growth was helped by accelerating sales growth on the back of strong demand for summer collections and market share gains.

“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,” CEO Karl-Johan Persson said in a statement.

The operating profit margin rose to 8.0% from 7.1%.

Inventories increased 9% to 42.0 billion crowns at the end of the third quarter, equivalent to 18.5% of sales. However, H&M said that measured in local currencies, they shrank by 1% while the composition of the stock had kept improving.

Markdowns decreased for a fourth straight quarter, by 2 percentage point in relation to sales. H&M had in June predicted a 1.5 percentage point decrease. The company broke habit by not providing an outlook for markdowns in the current quarter.

H&M said sales in September, the first month of its fourth quarter, grew 8% in local currencies.

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