PARIS — Has H&M turned the corner? Signaling an improvement in business, H&M group reported a 25 percent jump in third-quarter profit, lifted by full-price sales as overhaul efforts resulted in fewer markdowns.
“Our ongoing transformation work to meet customers’ ever-increasing expectations is bearing fruit,” Karl-Johan Persson, chief executive officer of H&M, said of the quarterly performance.
Struggling under the weight of billions of dollars worth of unsold clothing and caught in discounting spiral over a year ago, the Swedish fast fashion retailer has been revamping operations, revisiting store formats and investing in technological infrastructure to adapt to fast-changing consumption habits.
“The rapid shift in retail continues,” H&M said in its statement, outlining its efforts to adapt.
Analysts said the quarterly profit beat expectations.
“Inventory continues to improve and is running below sales growth in local currencies for the first time in 7 years,” said Richard Chamberlain of RBC.
“We think H&M has a multiyear markdown recovery opportunity,” he added. The analyst noted the company’s pricing seems to have stabilized following the downward trend in 2017 and 2018, and said margins will likely continue to improve.
Profit for the three months ending Aug. 31 was 3.86 billion Swedish Kronor, or $389 million, driven by brisk sales grown in the U.S., Italy and Poland, according to the Swedish fast fashion retailer.
Sales in September increased 8 percent in local currencies, with a positive weather effect in the first part of the month.
In a conference call with analysts, executives said they continued to improve the amount of full-priced sales over the month.
H&M has based its turnaround efforts on investments in technology, improving its offer, sprucing up stores and bolstering online services, with a focus on logistics operations. It is also expanding digitally and opening new stores in markets.
The group recently launched H&M on Myntra, the leading ecommerce platform in India, & Other Stories on Tmall in China and H&M in Indonesia and Thailand. The H&M label is available online in 50 markets.
Executives said they were seeing results from a new internet platform in Germany.
“We’re happy with the digitalization,” said Persson, noting that consumers are seeing improvements already.
Among services the group is working to expand is next day delivery, offered in 15 markets so far; same day delivery, which exists in some markets and rolled out further next year; click & collect, pay later and digital receipts.
The group will launch Monki live shopping on the label’s ecommerce site this fall, enabling customers to interact with each other and shop through a live stream. Consumers in the U.S., meanwhile can already shop the H&M brand through Instagram.
Recently expanding its loyalty program to the U.S., Canada and Russia, it is now available in 19 countries.
At the same time, it is expanding its physical network to new markets.
“We’re expanding more stores in emerging markets and closing stores down in more established markets,” Persson said. The group said it will open an additional 120 stores this year, a lower number than it previously said.
Meanwhile, the company is building a new logistics center in the U.K., but during the transition time, both the old and new warehouses will be in operation, doubling costs of a period of time, executives noted.
H&M, which is working to increase the use of sustainable materials in its products, aims for more sustainably-sourced cotton by next year. Exploring more environmentally delivery options, it will offer “green home deliveries” with cars operating with bio-fuel or bicycles. H&M was one of the first signatories of the France-sponsored Fashion Pact announced in August.