Fashion retailer H&M posts surprise first-quarter profit as cost cutting pays off By Reuters

(Corrects paragraph 7 to remove erroneous reference to H&M acquiring remaining Sellpy shares)

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 began to pay off, despite consumers cutting spending amid a galloping inflation and a delayed spring.

The Swedish group’s first fiscal quarter operating profit was SEK 725 million ($69.73 million) compared with a profit of SEK 458 million a year earlier and an average forecast loss of SEK 1.1 billion in a survey. from Refinitiv analysts.

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

H&M shares rose more than 7% in early trading.

“The start of the year shows that we have taken further steps towards the goal of achieving a 10% operating margin next year,” Chief Executive Helena Helmersson said in a statement.

H&M is seeking shareholder approval to buy back shares for up to 3 billion kronor, but said the board would wait to see how the company develops before deciding whether to use the authorization.

H&M said a revaluation of its stake in its majority-owned second-hand clothing platform Sellpy had boosted profits by around 1 billion kroner. H&M said Sellpy, in which it still has a 79.84% stake, is now part of the group.

Although H&M showed signs of controlling its costs, it was still struggling to compete with its main rivals. inditex (BME:), which owns Zara and other brands, as well as rapidly expanding fast fashion online retailers such as SHEIN and Temu.

“External factors influencing purchasing costs continue to improve, work on the cost and efficiency program is proceeding at full speed, and many of the changes we’ve made in recent years are starting to take effect,” Helmersson said.

H&M said March net sales were expected to rise 4% in local currencies compared to the corresponding period last year. That’s a slight acceleration after first-quarter sales rose 3% from last year, but it lags behind the competition.

“This is a softer trend than we’ve seen at other retailers, for example Inditex,” RBC analyst Richard Chamberlain said in a note.

H&M shares are up 9.5% so far in 2023, while Inditex shares have gained 19.7%.

H&M shares rival lag https://fingfx.thomsonreuters.com/gfx/mkt/zdpxdqelgpx/hennes.PNG

($1 = 10.3975 SEK)

(This story has been edited to remove an erroneous reference to H&M acquiring the remaining Sellpy shares, in paragraph 7)