H&M Q3 profits rise but September sales are dented by late heatwave

H&M’s nine-month report on Wednesday also came with the news that sales proved weak in September, with the company’s CEO saying “the start of the autumn season has been delayed because the month so far has been marked by unusually hot weather in many of our European markets”.

Sales for the whole of September are expected to fall 10% in local currencies compared with September 2022. The discontinued operations in Russia account for 4 percentage points of the drop. 

The report mainly focused on Q3 with the world’s second-biggest fashion retailer saying operating profit in the June-August quarter rose sharply to SEK4.74 billion (€406m/£353m/$430.7m) up from a year-earlier SEK902 million, which included a one-off SEK2.1 billion costs linked to the firm’s exit from Russia. The latest figure was slightly above analysts’ expectations and adjusted for the one-time costs, the increase was 58%.

The quarter’s net sales rose 6% to SEK60.9 billion, although they were “flattish” in local currencies compared with the previous year. Sales for its Portfolio Brands increased 16% in SEK and 10% in local currencies.

Gross profit rose 10% to SEK31 billion that corresponds to a gross margin of 50.9%, up from 49%. Net profit rose to SEK3.3 billion from SEK2 billion.

For the first nine months of the year, H&M said net sales increased 8% to SEK173.38 billion but they were flat in local currencies. 

Gross profit increased to SEK87.2 billion from SEK82.2 billion, although the gross margin was down to 50.3% from 51.1%. 

Operating profit rose to SEK10.2 billion from SEK6.3 billion with one-off Russia-linked costs of SEK1.75 billion. Adjusted for these costs, the increase compared with the previous year was 26%.

Net profit rose 61% to SEK 7.147 billion.

The company also said it’s developing well in Latin America and plans to open its first store, as well as online, in Brazil
in 2025. It also plans to gradually reopen most of its stores in Ukraine from November this year onwards.

CEO Helena Helmersson said: “The focus during the [third] quarter has been on profitability and inventory efficiency, resulting in strong cash flow and good profit development. We are taking further steps towards our goals and creating conditions for profitable growth over time.

“Sales in the third quarter started strongly with pent-up demand for summer garments following a cold May in most of our major markets. The effect then gradually decreased during the summer. There was a weaker end to the quarter, with comparative figures affected by the temporary reopening in Russia in August last year.”

She added that the firm is continuing to invest in tech, “enabling improved flexibility, faster response times and greater precision in buying”, and that the group’s process of rationalising its store portfolio with a number of closures is nearing a conclusion. 

“Our store portfolio has reached a level where we now see fewer closures going forward while at the same time new stores will be opened,” she said. 

“The stores are an important part of building our brand and we are increasing investments in stores to further elevate the customer experience. We are also creating new conditions for growth. During September H&M was successfully launched on JD.com, one of China’s biggest marketplaces for e-commerce.”