TLDR
- H&M’s Q3 operating profit hit 6.04 billion Swedish crowns, beating estimates of 5.14 billion crowns.
- Gross margin widened to 54.0% from 52.9%, topping forecasts.
- H&M stock fell about 2-3% as September sales guidance came in at just 1% growth.
- CEO Daniel Erver is pushing shorter lead times and closer-to-market factories to react faster to trends.
- Western Europe sales dropped 1% in the quarter, with Erver citing prolonged pressure on consumers.
H&M (HMb) stock dropped as much as 3% on Thursday before settling around 2% lower, even after the Swedish fashion retailer posted a profit beat for its fiscal third quarter.
H&M Hennes & Mauritz AB ADR, HNNMY
Operating profit for June through August came in at 6.04 billion Swedish crowns, up from 4.91 billion crowns a year earlier. That easily cleared the 5.14 billion crown average estimate from analysts polled by LSEG.
Gross margin also came in stronger than expected, rising to 54.0% from 52.9% a year ago. Analysts had penciled in 53.4%.
Investors were far less impressed with the outlook. H&M said September sales are on track to rise just 1% in local currencies, matching the sluggish pace seen throughout the third quarter.
That number stands in sharp contrast to rival Inditex, the owner of Zara, which reported 9% sales growth earlier this month. The gap says a lot about where H&M currently sits in the pecking order.
A Retailer Trying to Move Faster
CEO Daniel Erver, who took over in January 2024, has spent his tenure focused on tightening costs and improving how H&M buys and moves product. He told Reuters the company can now take an item from concept to store shelf in six weeks.
The goal is to buy a bigger share of inventory this way, cutting down the lag between spotting a trend and getting it in front of customers. Erver said this matters more now given unpredictable weather patterns and fast-moving fashion cycles.
Western Europe, H&M’s largest market, told a tougher story. Sales there fell 1% during the quarter. Erver pointed to consumers who have been “under a lot of pressure for a long time.”
Logistics changes played a role too. H&M closed its Belgian warehouse during the quarter, which weighed on revenue in the region.
Tariff Refunds Won’t Repeat
Some of the profit strength this quarter came from a one-off refund tied to US tariff payments. H&M was clear that it doesn’t expect further refunds like this going forward.
Freight costs also crept higher during the quarter, a factor the company flagged as an external pressure on purchasing costs. Markdown costs, meanwhile, held roughly steady compared to last year.
Looking to the fourth quarter, H&M expects external factors to be somewhat negative compared to a year ago. Markdown costs as a share of sales are also expected to tick up slightly, tied to a longer pre-Black Friday campaign window this year.
The company has been trimming its store count while renovating the ones it keeps. About a fifth of its roughly 4,000 stores have been refreshed so far.
Online sales now make up more than 30% of H&M’s total business. New warehouses are set to come online in Europe over the next year to support that growth.
Erver also addressed the EU’s new customs fees on low-value ecommerce packages, a policy he had pushed for to level the field against Shein and Temu. He said he doesn’t expect it to move the needle much for H&M’s own sales.
Third-quarter sales totaled 57.189 billion Swedish crowns, just above the 57.017 billion crowns reported a year earlier.
