--H&M shares nearly hit a two-year high after its 3Q net profit of SEK3.86 billion exceeded forecasts
--The clothing retailer is shifting toward online sales as footfall decreases in its stores and shoppers greeted the autumn collection positively
--The company has reduced its stock by 1% in the quarter, leading to fewer markdowns
By Dominic Chopping
STOCKHOLM--Shares in Hennes & Mauritz AB (HM-B.SK) hit their highest level in nearly two years Thursday after the fashion retailer posted a forecast-beating rise in third-quarter net profit as new collections and fewer markdowns helped offset higher costs from its turnaround efforts.
The Swedish company posted a net profit of 3.86 billion Swedish kronor ($391 million) 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.
At 0819 GMT, shares were 6.6 % higher at SEK196.58, a level not seen since December 2017.
As previously announced, sales rose to SEK62.57 billion from SEK55.82 billion in the quarter, while net sales in September are estimated to have increased by 8% on the year in local currencies.
Stockholm-based H&M is in the midst of a major shift toward online sales and improved logistics as fewer shoppers visit its physical stores, while at the same time grappling with overstocking that has previously prompted hefty clearance sales at lower margins.
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. Activity levels for the company's transformation work will remain high, including continued upgrades in the supply chain, it said.
These efforts are starting to bear fruit however, H&M 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 also helped boost the top line. The retailer saw 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 added.
The company managed to reduce the amount of stock it holds by 1% in the quarter, leading to a 2 percentage-point fall in markdowns in relation to sales, beating previous guidance for a 1.5 percentage-point drop in the third quarter.
"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," said Chief Executive Karl-Johan Persson.
As a result of accelerating its adaptation to customers' changed shopping patterns, H&M said it has revised the number of new stores downward in favor of more digital investments. The net addition of new stores for 2019 will now be around 120, which is 10 fewer than previously guided.
Write to Dominic Chopping at firstname.lastname@example.org