Thanks to summer collections that resonated well with consumers, along with fewer markdowns, H&M Group on Thursday managed to post its first quarterly profit in two years.
In a Nutshell: CEO Karl-Johan Perrson said, “Well-received summer collections and increased market share show that we are on the right track with our transformation work to meet customers’ ever-increasing expectations. Continued increases in full-price sales and decreases in markdowns contributed to a 26 percent increase in operating profit in the third quarter, all while maintaining a high level of activity in our transformation work.”
Persson also noted that the company saw growth in many markets, including the U.S., where sales in local currencies rose by 19 percent. Sales growth in India increased 29 percent, followed by Poland at 20 percent. Italy saw sales growth increase by 15 percent, and Russia was up 12 percent.
The CEO said customer focus remains the company’s “highest priority.” Investments, he said, improve fashion, quality, price and sustainability. The company is also rolling out its click-and-collect option, online returns in-store, and flexible payment options, all while integrating its digital and physical channels to make the customer experience “even more inspiring and easy.” He also said the company is developing new features that include services aimed at sustainability and re-use.
Currently, next-day delivery is available in 15 markets, while scan-and-buy is available in all 50 online markets. The latter allows customers to scan a QR code in store and buy the item online in the size and color they want. H&M’s customer loyalty programs are now in 19 markets, most recently in the U.S., Canada and Russia. The program will become available this fall in China through the communications app WeChat, which has 1 billion users.
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Also, members of the customer loyalty program in Switzerland and the U.K. have the option of shopping now and paying later. The Pay Later option will be rolled out as a service integrated with the H&M app during the balance of 2019 in Sweden, Austria, the Netherlands, Denmark, Finland and the U.S.
At the end of the quarter, H&M launched on Myntra, India’s leading e-commerce platform, and opened & Other Stories on Tmall in China. H&M’s online site was launched in Indonesia during the quarter, followed by Thailand in September. H&M also opened its first store in Belarus, bringing the brand to a total of 73 markets at the end of the third quarter.
Net Sales: The company said net sales rose 12 percent to 62.57 billion Swedish Krona ($63.54 billion) for the third quarter ended Aug. 31 from a year ago. In local currencies, net sales rose 8 percent.
The company also said that online sales in the quarter rose 30 percent in Swedish Krona, and 25 percent in local currencies. Gross profit rose 13 percent to 31.82 billion Swedish Krona ($32.31 billion), while gross margin for the quarter was 50.8 percent.
Earnings: Pre-tax profit increased 25 percent to 5.0 billion Swedish Krona ($5.08), while after-tax profits were 3.86 billion Swedish Krona ($3.92 billion).
In 2019, about 170 stores will be shuttered as part of the fleet optimization effort, and around 120 new stores will open, largely during the fourth quarter.
CEO’s Take: According to Persson, “Our ongoing transformation work to meet customers’ ever-increasing expectations is bearing fruit. The new season has got off to a promising start, with a positive reception for our early autumn collections. Looking ahead, we remain humble considering the challenges brought by the rapid shift in fashion retail. Our transformation work is therefore continuing at a fast pace in all parts of the company. We are convinced that this will contribute to positive development for the H&M Group for many years to come.”