H&M beats expectations, says turnaround strategy working

Fast fashion giant H&M reported first quarter results on Friday, exceeding expectations on both profit and margin, which it cited as proof that its turnaround strategy is working.

The global retailer’s pre-tax profit was 1.04 billion Swedish crowns (A$157.58 billion) for the quarter running from December 1, 2018 to February 28, 2019, less than the 1.26 billion Swedish crowns it posted in the previous corresponding period. But this was well ahead of the 708 million that analysts had been expecting, according to Reuters.

Gross margin was 50.0 per cent, up from 49.9 per cent in the previous corresponding period, while analysts had been anticipating a fall to 49.4 per cent.

H&M said this was the result of ongoing improvements in buying and logistics, which led to a 1.5 percentage point reduction in the markdowns in relation to sales, compared to the corresponding quarter the previous year.

“Our ongoing transformation work has contributed to stronger collections with increased full-price sales, lower markdowns and increased market shares,” Karl-Johan Persson, H&M’s CEO, said in a statement accompanying the results.

“Sales developed well both in stores and online in many markets, including Sweden which grew by 11 per cent, the UK by 8 per cent, Poland by 15 per cent, China by 16 per cent and India by 42 per cent in local currencies.”

H&M has also been working to improve its online offering by launching e-commerce sites in new markets, integrating digital and physical stores and providing faster delivery options. The retailer also said it will launch an upgraded loyalty programme, which has 35 million members, shortly.

Today, H&M is available online in 47 markets, and Mexico and Egypt will be added in 2019. It is also launching on Myntra and Jabong, India’s largest e-commerce marketplaces, later this year.

Rival fast fashion giant Zara has made a similar e-commerce push. It is now available in over 200 markets online. The chain’s parent company Inditex last year announced its plan to make every brand available online, including in markets where it doesn’t have any physical stores.

H&M said it plans to add 175  net new stores to its network in 2019. Most of these stores will open in growth markets, while the number of stores in Europe is expected to reduce by 50.

“The rapid transformation of fashion retail continues and we can see that our own transformation work is taking us in the right direction, even if many challenges remain and there is still hard work to do,” Persson said.

“The progress we have made in our strategic focus areas confirms that we are on the right track. Therefore we continue moving forward at full speed and we are optimistic about the future for the H&M group.”

H&M’s strategic focus areas include:

  • creating the best customer offering
  • fast, efficient flexible product flow in the supply chain, including initiatives within advanced data analytics and AI
  • continued investment in the tech foundation, including scalable and robust platforms to enable faster development of new apps and technologies
  • digital expansion into new markets

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