Shares of fashion retailer H&M reached a 16-month peak on Thursday as the company's second-quarter profit above expectations due to cost-cutting initiatives beginning to pay off and the warmer European weather helping its summer collection.
H&M, which has lagged behind Zara owner Inditex, has tried to increase its fashion appeal and promote its more expensive brands in an effort to appeal to consumers who are less susceptible to the growing cost of living as fast-fashion behemoth Shein steals market share with cheaper clothing.
The stock price of the second-largest clothes retailer in the world increased 11% to reach its highest point since February 2022. Swedish crowns They were last exchanged at 174.7 Swedish crowns.
Despite consumers' limited purchasing power and "unfavorable" weather, H&M improved sales in numerous areas, according to CEO Helena Helmersson, who also noted that the company's summer collection had started off well as temperatures soared across northern Europe.
Sales from June 1–27 increased 10% from the same period last year, which is encouraging for the beginning of H&M's third quarter. According to Helmersson, the growth in sales was driven by the H&M womenswear line as well as solid results from the Cos and Arket brands.
Investors were able to accept a lower margin of 8.2% in the second quarter, down from 9.2% one year earlier, thanks to the higher-than-expected profit.
High freight and raw material costs were cited by H&M as the reason for the decreased margin, although the retailer claimed that these expenses had pivoted from being negative to positive, showing a decrease in inflationary pressure.
Helmersson said that there would be a chance to change the price. He remained true to his earlier this year statement that although H&M is not yet where it wants to be, things are heading in a positive direction in China, though the firm has been having difficulties.
Unexpected inventory level decline
Cedric Rossi, a next-gen consumer analyst from Bryan Garnier in Paris, said that the unexpectedly rapid decline in inventory levels was a good thing.
Since markdowns had been in line with last year's levels, Rossi stated that she was "really surprised" to discover that H&M had reduced its inventory position without engaging in any further promotional activity.
At the end of May, H&M's inventory was 16.7% of rolling 12-month sales, down from 19.2% one year earlier.
Last year, H&M announced cost-cutting measures, including layoffs, that it claimed would help it start reducing expenses in the second half of 2023.
Operating profit increased in the second quarter to 4.74 billion Swedish crowns namely $438.6 million, considerably above the 4.07 billion anticipated by experts in a Refinitiv poll but down from 4.98 billion a year earlier thanks to cost savings.
H&M, which shuttered a total of 303 shops across all of its brands in the year ending May 31, stated that it will launch new stores primarily in "growth markets" and close stores primarily in "established markets."