H&M reported a pick-up in quarterly profit margins today, boosting optimism about its turnaround efforts even as the fashion retailer blamed unusually hot weather in many of its European markets for delaying the autumn shopping season.
H&M, whose biggest rival is Zara owner Inditex, said September sales would fall by 10% year-on-year as measured in local currencies.
That compares with Inditex reporting a 14% rise in sales between August 1 and September 11.
"If the sales at your competitor basically go up by 14% with the same weather, that tells you something, to my mind," said Vera Diehl, portfolio manager at Union Investment, which holds shares in H&M and Inditex.
H&M's shares jumped by more than 5% in early trade, however, as profits in the June-August quarter rose and H&M stuck to a goal of increasing its operating margin to 10% next year.
it said that its cost-cutting programme was continuing "at full speed".
H&M's margin reached 8% in the third quarter, from 2% a year-earlier, as the retailer said it has prioritised profitability and inventory, rather than sales.
The 10% target is "challenging but achievable," Barclays analyst Nicolas Champ said.
Operating profit in the Swedish group's third quarter jumped to 4.74 billion crowns ($431m) from 902 million a year earlier. Analysts polled by LSEG had on average forecast a 4.72 billion crown profit.
Last year's figure included a one off-cost of 2.1 billion crowns for the group's exit from Russia, which also accounted for four percentage points of the 10% September sales decline.
"We believe H&M is very much in 'trading sales for profits' mode which is leading to margin improvement but some pressure on volumes," RBC analyst Richard Chamberlain said.
As cost pressures ease, H&M's chief financial officer Adam Karlsson said he saw the potential for price cuts, without giving a timeframe
Shoplifting increased over the last two quarters and H&M is looking for solutions that would break the trend, Karlsson said, adding to a string of retailers flagging worsening crime, especially in Britain and the US.
In China, H&M this month returned to JD.com, one of the country's biggest e-commerce marketplaces, in a sign the brand is recovering after a prolonged absence after criticism over its stance on alleged human rights abuses in the Xinjiang region.
It returned to Alibaba's Tmall e-commerce platform last year, but has not been available on JD.com since 2021.
In another positive announcement for investors, H&M said it would start a share buyback programme today, planning to buy back up to 3 billion crowns of stock by March 31 next year.
