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H&M profit soars 25 per cent in latest quarter

H&M’s pre-tax profit rose 25 per cent in the latest quarter to US$506 million as the Swedish-headquartered global fast-fashion retailer trimmed its inventory and customers embraced its summer range. 

“The new season has got off to a promising start,” said CEO Karl-Johan Persson. 

Globally, net sales rose by 12 per cent in the third quarter to $6.35 billion, helped by a 30-per-cent jump in online sales. In the US market, where it has been struggling, it cut prices on core lines to reduce inventory, and sales rose 19 per cent. 

Kate Ormrod, lead retail analyst at GlobalData, said the results showed H&M’s strategic overhaul – in which it has embraced the shift away from physical retail to digital – is beginning to  reap rewards. 

The increase in full-price sales and a reduction in markdowns resulted in the group’s first double-digit growth in operating profit and its first quarterly increase since the second quarter of 2016/17.

The Swedish retailer now expects to only open around a net 120 stores this year, a further reduction on the 175 stores originally planned – although expansion in growth markets remains a priority. Ormrod said that while Persson says a ‘high level of activity’ remains in its transformation work, the scale and coverage of its investment, extending to almost all parts of its business, is notable, and signifies the evolution of the retailer as it strives to satisfy changing consumer demands.

“This year has not been without its challenges however, especially in the UK, and while it remains under pressure from value rivals as well as more frequent discounting from mid-market players, H&M’s proposition continues to resonate,” she said.

Ormrod also praised H&M’s commitment to embracing sustainability.

“Its longstanding commitment to sustainability sets it apart from other value players and with new initiatives such as green home delivery (for example via cars that run on biogas) in the Netherlands and trialling clothing rental in Stockholm in the autumn, H&M has found its niche which it can continue to exploit as consumer focus on sustainability grows.”

However she offered a cautious response to news leaked last month that H&M-branded stores are to trial selling third-party products. 

“While the idea holds merit to extend its reach and bolster appeal, with sister brands & Other Stories and Arket already selling external brands, taking on Asos and Zalando is a big ask, so third-party brands are unlikely to become a cornerstone of its proposition.”

This story originally appeared on Inside Retail Asia.

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