H&M results: sales and profits down but CEO talks of progress, COS is strong

Fashion Network

a day ago

H&M Group's Q2 results on Thursday showed the Swedish fashion retail giant's reported sales from March to May falling a little more than analysts had expected but its lower operating profit was actually slightly higher than predictions. Its CEO was upbeat on developments for H&M womenswear and H&M Move as well as highlighting strength at the COS brand. And investors may be assumed to have agreed with him as its shares rose by a few percentage points in early trading on Thursday.
And he said sales in June are expected to increase by 3% in local currencies year on year, a figure that's impacted by a negative calendar effect of around one percentage point.
It all suggested better times to come, even if the figures don't look that great on paper. So let's look at those numbers.
There's no getting away from the fact that in its reporting currency — Swedish krona — its sales fell. But on the plus side, the group reported 1% Q2 sales growth in local currencies and managed that despite operating fewer stores.
The March to May figures were impacted by the strength of Sweden's currency with a negative currency translation effect of around 6 percentage points. The small sales increase in local currencies came from 4% fewer stores and excluding these closures, sales increased by 3%.
But converted into krona, net sales dropped to SEK56.7 billion (€5.1bn/£4.4bn/US$6bn), down from SEK59.6 billion and gross profit fell to SEK 31.4 billion from SEK33.5 billion as the gross margin fell to 55.4% from 56.3%.
The gross margin was impacted by factors such as the more expensive US dollar and high freight costs (which increased the cost of purchasing for Q2), but also by the company's investments in the customer offering. That said, the external factors that had a negative impact on purchasing in the first half of the year 'are turning positive for the second half'.
Quarterly operating profit fell to SEK5.9 billion from SEK7 billion, corresponding to an operating margin of 10.4%, down from 11.9%. And net profit dropped to SEK3.9 billion from just over SEK5 billion.
For the first half as a whole, net sales in local currencies rose 1% but in Swedish krona they were down to just over SEK112 billion from more than SEK113 billion.
Gross profit was SEK58.59 billion, down from SEK61.2 billion with a gross margin of 52.3%, down from 54%. Operating profit dropped to SEK7.11 billion from SEK9.17 billion and net profit fell to SEK4.54 billion from almost SEK 6.3 billion.
Despite the fairly anaemic results, CEO Daniel Ervér talked of 'progress' in key areas and said that 'our plan, with its focus on the product offering, the shopping experience and brand, is again confirmed by the progress we see. The positive development in important areas such as online, H&M womenswear and H&M Move, as well as continued focus on good cost control, will contribute to a profitable sales development.'
Unusually, given that H&M rarely mentions its other brands in such results announcements, he said: 'Portfolio brands also grew in the quarter and COS has developed particularly well. Some measures have a faster impact than others, but the direction is clear and during the year we continue to implement improvements in other parts of the business.'
He sees further reasons for optimism with actions such as the company opening its first stores and offering online shopping in Brazil (a country with a population of more than 200 million) early in the second half as a prime example of positive developments.
The CEO also said that the Q2 figures need to be seen in the light on Q2 in 2024 being particularly strong so the comparisons have got tougher.