Shares of H&M surged by 14% during early trading on Wednesday, propelled by the Swedish retailer’s remarkable outperformance in its fiscal first quarter.
Operating profit increased to 2.08 billion Swedish krona ($196 million), exceeding the 1.43 billion krona forecast in an LSEG poll of analysts.
The company’s operating margin also experienced a notable ascent, reaching 3.9% from 1.3%, as it reaffirmed its objective of achieving a 10% operating margin for the year.
Net sales in the first quarter fell year-on-year to 53.7 billion krona from 54.9 billion krona.
H&M had previously communicated its emphasis on enhancing profitability, responding to mounting competitive pressures from entities like Zara’s parent company, Inditex, and Chinese fast fashion players like Shein.
“Development in the first quarter progressed positively, marked by enhanced gross margin and operating profit, alongside reduced inventory and robust cash flow,” stated H&M Group CEO Daniel Ervér, who assumed his position at the beginning of the year following the unexpected departure of Helena Helmersson.
During an analyst call after the release of the results, Ervér emphasized the company’s primary focus on bolstering sales, with an expectation of lower prices by the end of 2024 compared to the year’s outset, as reported by Reuters.
Inventory witnessed a year-on-year decline of 7% during the quarter. Addressing the long-standing challenge of excessive unsold stock accumulation, the company has made concerted efforts to diminish this inventory burden.
H&M announced its intention for a dividend payout of 6.5 krona per share at its May annual general meeting, alongside a proposal for the authorization of a B share buyback, disclosed on Wednesday.
Jefferies analysts characterized the quarterly results as a combination of “mixed top line delivery” and a significant overachievement in gross margin, which reached 51.5%.
The positive momentum in sales during the early spring/summer season provided support to H&M’s credibility in achieving its targeted 10% operating margin, as highlighted in the Jefferies analysis.
H&M’s stock performance has been volatile in recent years, experiencing a 37% decline in 2022 followed by a 57% increase in 2023.
