H&M Stock Price Soars on June Sales Numbers
PARIS — As supply chain and inflation costs hit, Swedish high street retailer H&M posted slightly weaker than expected sales in the three months to May 31, citing “flattish” net sales in local currencies.
Net sales looked a little stronger in Swedish kronor, showing a 6 percent increase to 57.6 billion, or $5.36 billion at current exchange. The Swedish currency fell to its weakest level ever against the dollar and the euro during the quarter.
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But the company boasted a strong start to the summer, with sales up 10 percent in local currencies for the period of June 1 to 27, citing the particular strength of womenswear and the offering of linen separates in light colors.
The news sent the stock price soaring, with shares up 18 percent at market close.
“The summer collections have been well received and the third quarter has got off to a good start. The conditions for increased growth as well as profitability continue to develop in a favorable direction,” said chief executive officer Helena Helmersson. The H&M brand also had a hit collection with its Mugler collaboration that was released May 11.
The positive June performance also indicated a general recovery of the apparel retail sector said RBC Europe Limited analyst Richard Chamberlain in a note.
The company cited “high raw materials and freight costs and a strong U.S. dollar” as impacting its bottom line in the second quarter but sees that stabilizing. “The external factors that affect our purchasing costs continue to improve,” Helmersson said in a call with analysts.
While supply side challenges may have been the biggest driver of a sluggish quarter, company executives admitted that customers also held back due to economic worries. “In the U.S. we have seen customer sentiment weakening throughout the quarter,” said H&M Group head of investor relations Nils Vinge in a call with analysts. He framed it as in “industry trend” as shoppers tightened their purse strings in the period.
“The inventory levels are going down, both from selling more and more productive stock, but also buying less,” added chief financial officer Adam Karlsson. The group is also nearshoring for faster response time. H&M had previewed these numbers in a trading note on June 15, blaming the soft sales in the second quarter on the weather.
Sales for portfolio brands — meaning outside of its core H&M stores — were up 12 percent in local currencies, and 17 percent in Swedish kronor. The company operates Arket, Cos, Monki, & Other Stories and Weekday in addition to its flagship brand.
H&M has been concentrating on its more upmarket brands, including Cos, which is undergoing an “extensive upgrade” to reach fashion clients as demonstrated in a fashion show in Paris, and Arket, which focuses on sustainable materials and a highly edited collection.
H&M has been battered by its fast-fashion image while competing on both ends of the shopping spectrum. Inditex’s Zara continues to upscale its positioning as a fashion brand and improve omnichannel services, while H&M is also taking hits from online retailers like Shein on the lower end.
The group aims to continue to elevate the customer experience with store revamps, reassess store formats and improve omnichannel.
To slow online returns, the group has improved sizing information and consistency, Helmersson said, as well as instituted return fees in some markets. More fees will roll out across Europe in coming months as a “rather big” part of the strategy to curb returns.
The company is carefully tweaking its store portfolio, both in market mix and in brands. The group has culled stores in “mature markets” and is focusing on expansion in newer countries. H&M, Cos, Monki, & Other Stories and Weekday all closed stores in the first half of the year, with H&M shuttering 54 locations. Arket entered Estonia, while H&M launched online in Vietnam.
More new markets are expected in the second half of the year, with Cos expected to launch in Mexico, while Monki will open in Hong Kong. Switzerland will have two new H&M Group brands, with & Other Stories and Arket entering the country. Arket will also expand Eastern Europe to Latvia before the end of the year.
It’s also continuing to develop its H&M Beauty as a lifestyle brand with its own products and as a Sephora-like multibrand retailer. The first H&M Beauty flagship opened in Oslo in May. Helmersson said the reception has been “fantastic,” and the company will continue to expand this concept.
The company anticipates wage pressure in several markets, Helmersson said. The results were released a day after the company reached an agreement with striking workers in Spain, which had shuttered stores in the country for several days in a fight for better wages.
The company, which implemented a cost reduction plan — closing selected stores and reducing headcount by about 1,500 jobs — decreased marketing and administrative costs by 2 percent in local currencies. The cost-cutting plan “is proceeding at full speed, and much of the work that we have done in recent years is starting to bear fruit,” Helmersson reported.
Gross profit in the second quarter rose to 30.38 billion Swedish kronor, or $2.81 billion, corresponding to a gross margin of 52.7 percent, while operating profit totaled 4.74 billion Swedish kronor, or $438.6 million at current exchange.
The company is launching a stock buyback program to purchase up to $277.68 million worth of its own shares within the next year.
In the first half, group net sales were up just 1 percent in local currencies, and 9 percent in Swedish kronor to 112.48 billion, or $10.44 billion at current exchange.
The period was impacted by “high raw materials and freight costs, a strong U.S. dollar, increased energy costs and the effects of winding down the operations in Russia.” The company pulled out of the territory, where it operated about 170 stores, when the country invaded Ukraine, and began wrapping up its operations there last summer.
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