H & M Hennes & Mauritz AB reported higher-than-expected profits in its 2019 fiscal third quarter, boosted by strong sales, and said its fall season has gotten off to a good start.
The Swedish clothing company reported EPS of 2.33 Swedish kronor in the third quarter ended Aug. 31, compared with EPS of 1.87 kronor reported in the year-earlier period. The market expected the company to report EPS of 2.27 kronor for the quarter, according to consensus analyst estimates compiled by S&P Global Market Intelligence. Net sales jumped 12% in the quarter.
In early trading on the Swedish stock exchange, H&M's shares jumped 6.62% to 196.65 kronor.
The fast-fashion retailer is trying to respond more quickly to the changing behavior of its customers with a transformation plan to revamp its logistics system, integrate its physical and online stores, and sharpen its store portfolio. However, by some measures, such as operating margin, H&M continues to lag behind its chief European rival, Industria de Diseño Textil SA, the Spanish owner of the Zara brand.
The Stockholm-headquartered company reported an operating profit of 8% in the quarter, compared with 7.1% a year ago.
"We see that our ongoing transformation work is clearly having effect," said CEO Karl Johan-Persson in a call with analysts after the results were released. "The new season has also got off to a very promising start with the positive reception for our early autumn collections. Sales in local currencies increased by 8% in September."
Profit after financial items and tax for the latest period was 3.86 billion kronor, up from 3.10 billion kronor. Sales for the latest quarter rose to 62.57 billion kronor from 55.82 billion kronor, boosted by strong demand for the company's summer clothing collections.
"The positive development of more full-price sales and reduced markdowns continued in the third quarter, contributing to an increase of 26% in operating profit," added Johan-Persson.
Measured in local currencies, sales rose 19% in the U.S., 20% in Poland, 15% in Italy and 29% in India. However, the improvements were muted in some of the company's franchise markets, reflecting what H&M described as "challenging macro factors." Quarterly net sales growth in Germany, which is the company's largest market, was 5%.
Online sales in the third quarter increased 30% in Swedish kronor and 25% in local currencies. The company also said the net addition of new stores for full year 2019 would be about 120, somewhat fewer than planned.
For the nine months, profit after tax increased to 9.23 billion kronor, or 5.58 kronor per share, up from 9.11 billion kronor, or 5.50 kronor per share, in the year-ago period. Net sales over the nine months rose 11% to 171.06 billion kronor.
As of Oct. 2, US$1 was equivalent to 9.87 Swedish kronor.
