H&M shares rise as profits beat forecasts
Hennes & Mauritz on Wednesday reported better than expected profits as it benefited from lower buying prices.
The Swedish fashion retailer, which recently enlisted Madonna to design a tracksuit as part of its autumn ranges, said sales for the third quarter excluding VAT grew by 11 per cent to SKr16.75bn ($2.28bn), while pre-tax profits grew by 13 per cent to SKr3.77bn, above expectations.
The retailer added that its bought-in margin, which reflects the prices goods are bought at, had improved due to better purchasing that led to lower buying prices. But price reductions were higher than in the third quarter of last year since the stock level was marginallly higher than planned at the beginning of the quarter.
The effect of the price reductions trimmed gross margin by 0.3 percentage points compared to last year, bringing a net improvement in gross margin of 0.4 percentage points.
Tony Shiret, analyst with Credit Suisse, said: “Sourcing conditions were much better than people had been expecting. And I think the benefit to the gross margin will continue for some time.”
Richard Chamberlain, analyst with Goldman Sachs, said in a note on Wednesday: “Based on these results we see slight upwards pressure to consensus estimates for this year, and more for next year. Downside risks are if H&M starts to see increased cannibalisation in Germany (where it has about a 6 per cent share of the market) or if it fails to sustain its growth rate through expansion in the US.”
The company, which has recently expanded in the Gulf with the launch of franchise stores in Kuwait and Dubai, said that sales in these stores so far had been “very satisfactory”. It is continuing its expansion in the region, with a new franchise store opening in Qatar in the spring.
It is also ramping up internet operations after introducing online sales to the Netherlands at the beginning of August where the response has been “very positive and beyond H&M’s expectations”. H&M already sells online in the Nordic countries and has sold goods on the internet since 1998.
H&M will continue to expand online with launches in Germany and Austria next autumn.
It is also preparing to open first stores in Shanghai, Hong Kong, Greece and Slovakia and will launch shoe collections in 200 stores.
Sales for the nine month period rose by 13 per cent to SKr48.89bn, with pre-tax profits rising by 12 per cent to SKr10.37bn.
The result for the nine month period before tax was positively affected by currency fluctuations of SKr210m compared with the same period last year.
Overall, sales had increased in August by 15 per cent compared with last year.
Shares were up 4.1 per cent at 304 SKr in early trade in Stockholm.
