By Dominic Chopping
STOCKHOLM--Sweden's Hennes & Mauritz AB (HM-B.SK) reported results for the fiscal third quarter on Thursday. Here's what we watched:
SALES FORECAST: The company confirmed prereleased third-quarter sales information, recording a 12% rise in sales to 62.57 billion Swedish kronor ($6.33 billion). In local currencies, net sales increased by 8% year-on-year. Net sales in September are estimated to have increased by 8% on the year in local currencies, it said.
NET PROFIT FORECAST: The Swedish fashion retailer posted a net profit of SEK3.86 billion for the quarter ended Aug. 31 compared with SEK3.1 billion a year earlier. Analysts polled by FactSet had expected a profit of SEK3.76 billion.
WHAT WE WATCHED:
-TURNAROUND: H&M has been busy shifting toward online sales and improved logistics and the company had already said that activity levels related to the transformation work have remained high in the third quarter. Costs in the quarter increased by SEK2.67 billion as the company continued to invest in its store and online expansion, AI, technology, logistics and its customer-loyalty program. These efforts are starting to bear fruit, it said. After a strong summer collection, the autumn range has made a promising start, with shoppers greeting early collections with a positive reception, while an increasingly broader online offering and continuing improvements in its logistics infrastructure have helped boost the top line. The retailer had double-digit-percentage sales growth in markets such as the U.S., Russia, Italy and India, but things were a bit tougher in some of its franchise markets due to challenging macro factors, it said.
-MARGINS: Gross profit increased by 13% to SEK31.82 billion in the third quarter, corresponding to a gross margin of 50.8%, from 50.3%. The operating margin rose to 8.0% from 7.1%. For the third quarter, the external factors influencing purchasing costs were negative, above all as a result of the more expensive U.S. dollar compared with the same purchasing period the previous year, it said. The gross margin was also affected by continued investments in a stronger customer offering and by the costs of the transformation work, it said.
-INVENTORIES: H&M has been grappling with overstocking that has been sparking hefty clearance sales at lower margins. However, the company said it managed to reduce the amount of stock it holds by 1% in the quarter, leading to a two-percentage-point fall in markdowns in relation to sales, beating previous guidance for a 1.5 percentage-point drop in the third quarter. "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," Chief Executive Karl-Johan Persson said. "The continued development of more full-price sales and reduced markdowns contributed to a 26% increase in operating profit in the third quarter, all while maintaining a high level of activity in our transformation work."
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