H&M Gains as Retailer Starts Clearing Out Inventory Buildup

Hennes & Mauritz AB shares jumped as the Swedish clothing retailer made progress in reducing an inventory buildup that has plagued the company for more than six years.

(Bloomberg) — Hennes & Mauritz AB shares jumped as the Swedish clothing retailer made progress in reducing an inventory buildup that has plagued the company for more than six years.

The stock rose as much as 11% after inventory dropped to the lowest level in proportion to sales in almost three years.

H&M’s $4 billion inventory pile has been one of Chief Executive Officer Helena Helmersson’s largest headaches, leading the company to rely on heavy discounting. H&M’s results show it kept rebates flat in the first quarter, which led to a higher-than-expected level of profitability, analysts said.

The company’s inventory stood at 17.9% of sales. H&M has been targeting a level of 12% to 14%.

Revenue is rising 4% in March, the first month of H&M’s second quarter, adjusted for currencies. Spring collections are being well-received in markets where weather has warmed up, but the start of the season has been delayed in many countries that have been colder, the retailer said.

First-quarter profit unexpectedly rose as H&M began consolidating results from its second-hand clothing platform Sellpy. Analysts expected a loss. Sellpy helped contribute to a 1 billion kronor accounting gain as its assets and results are now included in H&M’s. The platform operates in more than 20 markets across Europe including Sweden, Germany and Austria.

Sellpy’s revenue rose 85% last year and H&M has forecast its sales to exceed 1 billion kronor this year.

Spanish rival Inditex SA has outperformed H&M, gaining more than 40% over the past year while the Swedish company’s stock has dropped. Earlier this month, the owner of the Zara chain announced a 29% gain in operating profit for the year through January. The company also plans to invest almost twice as much as its Swedish competitor this year.

CEO Helmersson said H&M is on track to reach her goal of an operating margin of 10% next year. The margin was 3.2% in fiscal 2022.

Improving profitability is a challenge as the Swedish krona is at historically low levels against the dollar. That makes it more expensive for H&M to buy garments from Asia, where prices are usually tied to the US currency.

The company said it expects buying conditions to remain very negative in the second quarter and gradually improve later in the year.

–With assistance from Jonas Ekblom.

(Updates with inventory level in second paragraph)

More stories like this are available on bloomberg.com