By Greta Rosen Fondahn and Helen Reid
STOCKHOLM, Sept 24 (Reuters) – Swedish fashion retailer H&M is driving changes to improve efficiency and react more quickly to trends, its CEO said on Thursday, after the company reported stronger-than-expected third-quarter operating profit and sluggish sales.
Since Daniel Erver became CEO in January 2024, H&M’s profitability has improved but sales have stagnated in the face of fierce competition from Shein and Zara owner Inditex.
On a call with analysts, Erver highlighted the retailer’s efforts to buy clothes with shorter lead times and from factories closer to its main markets, enabling it to react faster to fashion trends.
“We are not yet where we want to be, but step by step, we are firmly building a faster and more flexible and customer focussed H&M,” Erver said.
BOOST FROM US TARIFF REFUNDS
Refunds from US tariff payments boosted operating profit in H&M’s fiscal third quarter to 6.04 billion Swedish crowns ($608.63 million) from 4.91 billion crowns a year earlier and compared with a mean forecast of 5.14 billion crowns in an LSEG poll. H&M’s operating profit margin was 10.6%.
But shares in the retailer fell 3% as sales growth remained sluggish and H&M said it did not expect any further tariff refunds.
H&M said sales in September would rise by 1% in local currencies — the same growth rate as the June-August quarter. Zara owner Inditex reported 9% sales growth for its first half earlier this month.
“They are still struggling to lift sales growth,” said Inderes analyst Lucas Mattsson.
Conflict in the Middle East has disrupted shipping and air freight, pushed up transport prices and caused delays in some product deliveries, Erver said. H&M’s inventories were up 9% in currency-adjusted terms in the quarter due to supply chain disruptions.
Chief Financial Officer Adam Karlsson said better sourcing, strong cost control and more efficient ways of working were helping to boost H&M’s operating margin closer to its long-term target of 10% annually.
H&M is revamping its stores globally, and said it had improved a fifth of its 4,000 stores so far, as well as investing in logistics as online sales grow, saying it would start using new warehouses in Europe this year and next to improve its capacity and product availability.
Meanwhile, the billionaire heirs of H&M founder Erling Persson have been quietly increasing their stake, fuelling speculation they could eventually take the group private.
H&M’s third-quarter sales were 57.189 billion Swedish crowns ($5.79 billion), compared to 57.017 billion a year ago.
($1 = 9.9239 Swedish crowns)
(Reporting by Greta Rosen Fondahn and Helen Reid. Editing by Terje Solsvik, Mark Potter and Barbara Lewis)
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