Hennes & Mauritz AB shares gained after the Swedish fast-fashion retailer made progress reducing a longstanding inventory buildup, boosting optimism profitability will improve.
(Bloomberg) — Hennes & Mauritz AB shares gained after the Swedish fast-fashion retailer made progress reducing a longstanding inventory buildup, boosting optimism profitability will improve.
Operating profit fell 5% in the three months through May, the clothing retailer said Thursday. H&M said it’s on track to reduce inventory further after a 20% reduction to the lowest level since the pandemic. The stock rose as much as 9.9%.
Chief Executive Officer Helena Helmersson is finally making headway on reducing a pile of unsold clothes that has been plaguing the company for seven years. The retailer is also closing 200 underperforming stores this year and opening 100 in better locations. The company is reducing costs as its contracts allow it to renegotiate or exit a third of its leases each year.
“The summer collections have been well-received and the third quarter has got off to a good start,” Helmersson said in a statement. Sales are up 10% in June.
Low-cost clothing is luring shoppers as consumers suffer a cost-of-living crisis. Primark said earlier this week sales jumped 7% on a like-for-like basis in the three months through May. H&M has been offering ultralow prices on products such as $1.99 crop tops and $2.99 T-shirts as online upstart Shein undercuts its offerings.
Cost savings should reach 2 billion kronor ($185 million) this year and H&M is on track to reach an operating margin of 10% next year, the CEO added. The last time profitability was that high was in 2017.
The Swedish retailer keeps lagging competitor Zara in popularity among fast-fashion shoppers, and both companies in turn have seen their market share under threat from Shein, which offers fast fashion at cut-rate prices. H&M said it plans to increase markdowns slightly in the third quarter.
The retailer now has about 4,400 shops, compared to a peak of 5,076 in 2019.
(Updates with shares in second paragraph)
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.