Stockholm, June 29 (BNA): Shares of fashion retailer H&M’s (HMb.ST) jumped more than 17% Thursday after estimates beat its second-quarter profit as cost-cutting measures began to bear fruit and its summer collection benefited from warmer weather in Stockholm. Europe.
H&M, which succeeded Zara owner Inditex (ITX.MC), has sought to increase its fashion appeal and boost its pricier brands, targeting shoppers less vulnerable to the high cost of living as fast-fashion giant Shein takes market share on less than apparel. Expensive.
Shares in the world’s second-largest fashion retailer jumped to their highest level since January 2022 and were on track for their biggest one-day gain ever. The stock, which is either heavily shorted or has high bets against it, was trading at SEK 185 by 1500 GMT.
Adam Cochran, an analyst at Deutsche Bank Research, said the share price jump was likely supported by a “short squeeze,” adding that “investors are re-evaluating the possibility of H&M reaching management’s 10% EBIT margin target given better cost control.” which was proven in the quarter..”
CEO Helena Helmerson said H&M increased sales in several markets despite pressure on consumer spending capacity and “unfavorable” weather, adding that its summer collection is off to a good start as temperatures warm across northern Europe.
Sales from June 1 through 27 were up 10% from a year earlier, which is a good sign for the start of H&M’s third quarter. Helmerson said the H&M womenswear range, plus strong performance from brands Cos and Arket, drove sales.
Stronger-than-expected earnings helped investors absorb a weaker margin of 8.2% for the second quarter, down from 9.2% a year earlier. H&M aims to achieve an operating margin of 10% by 2024.
H&M blamed higher raw material and freight costs for the margin decline, but said those factors “have gone from being negative to positive,” pointing to easing inflationary pressure, which Helmerson said could drive down prices.
“Of course there is the possibility of some price cuts to make sure we are really competitive, but we also always follow up on taking steps towards the profitability target that we set for 2024,” she said on a call with analysts. .
In China, where H&M has been struggling, Helmersson has stuck to the same message it had earlier this year, saying the company isn’t quite as high as it would like it to be, but things are moving in the right direction.
The sharp drop in inventory levels was a positive surprise, according to Cedric Rossi, a next-generation consumer analyst at Bryan Garnier in Paris.
“I was really surprised to see that, without any higher promotional activity — because the discounts were in line with last year — H&M lowered its inventory position,” said Rossi.
H&M stock was at 16.7% of 12-month circulating sales on May 31, down from 19.2% a year earlier.
Last year, it announced layoffs and other cost cuts with the aim of cutting costs by SEK 2 billion.
The cost cuts helped deliver a second-quarter operating profit of 4.74 billion Swedish crowns ($438.6 million), down from 4.98 billion a year earlier but well above the 4.07 billion forecast by analysts polled by Refinitiv.
H&M, which closed a total of 303 stores across its brands in the year ending May 31, said its new store openings will be mainly in “growth markets” while it will close stores mainly in established markets.
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