STOCKHOLM (Reuters) -Swedish fashion retailer H&M reported on Thursday a bigger-than-expected rise in third-quarter operating profit, but said it expected local-currency sales to be flat in September.
H&M profit jumps as brand-boosting strategy starts to pay off
By Greta Rosen Fondahn and Helen Reid
STOCKHOLM (Reuters) -Swedish fashion group H&M reported a bigger than expected rise in third-quarter profit on Thursday, and while its autumn collections were selling well, CEO Daniel Erver cautioned that U.S. tariffs may dampen consumer demand there.
Shares in the world's second-largest listed apparel retailer jumped 10% to hit their highest level in 11 months after operating profit for the June-August period increased by 40%.
Daniel Erver, CEO since January 2024, has been working to improve profitability by appealing to shoppers with trendier styles, aiming to compete with fast-fashion rivals Shein and Inditex's Zara as the sector contends with disruption from U.S. tariffs.
H&M RECRUITS CELEBRITIES FOR MAKEOVER
Erver has overhauled H&M's marketing, hiring pop stars like Charli XCX and Tyla for concerts and ad campaigns aimed at making its core brand more fashionable. Last week the retailer staged its first H&M catwalk show since 2018, to kick off London Fashion Week.
"We are taking further steps in the right direction," he said on Thursday.
After two consecutive quarters of falling earnings, H&M said June-August operating profit jumped to 4.91 billion Swedish crowns ($523 million) from 3.51 billion a year ago thanks to a stronger product mix and tighter cost control.
Analysts polled by LSEG had on average forecast a profit of 3.68 billion crowns.
H&M cautioned, however, that U.S. tariffs on imports would weigh more heavily on margins in the quarter through November.
H&M TAKES PRUDENT PRICING APPROACH
"We are cautious about the U.S. heading into the fourth quarter, both connected to the impact of tariffs on the gross margin but equally also the consumer sentiment, because we know there is a lot of movement happening and we can see the price increases," Erver said in an interview with Reuters.
H&M sees its rivals increasing their prices in the U.S., Erver said, but plans to take a "prudent" approach, only raising prices where it assesses consumers are willing to pay more, and keeping entry-level prices the same for sensitive items like basics and children's wear.
The U.S. is H&M's second-largest market after Germany, accounting last year for 13% of group sales.
MORE IN-SEASON SHOPPING AT FULL PRICE
Analysts at JP Morgan and Alphavalue welcomed a 9% drop in H&M's inventory levels as the retailer said shoppers were buying more products in season - at full price rather than in end-of-season sales.
H&M said it expects markdowns to increase somewhat in the fourth quarter, partly because Black Friday falls one day earlier.
Sales in reported currency fell to 57.0 billion crowns from 59.0 billion, slightly above the expected 56.8 billion. H&M expects local-currency sales in September to be flat compared with an unusually high year-ago figure.
H&M, whose customer base is considered more price-sensitive than Zara's, has faced greater pressure in recent years as consumers tighten spending amid higher living costs and global uncertainty.
($1 = 9.3840 Swedish crowns)
(Reporting by Greta Rosen Fondahn and Helen Reid, writing by Anna Ringstrom; Editing by Louise Heavens)
