H&M Profit Beats Expectations as Concerns of Slowing Sales Mount

Swedish fast-fashion retailer Hennes & Mauritz AB beat profit expectations for a third consecutive quarter, aided by tight cost controls and upgraded collections that proved popular with shoppers.

Operating profit in the fiscal fourth quarter ended November of 6.36 billion kronor ($723.2 million) exceeded the 5.5 billion kronor analysts had expected. Net sales hit 59.22 billion kronor, compared with analyst estimates of 59.5 billion kronor. The operating margin also surpassed expectations.

The current fiscal year, including the crucial Christmas trading month, is off to a slower start with sales likely more muted compared with the same period last year. H&M chief executive officer Daniel Ervér has been pursuing a strategy of increasing marketing spending and price promotions in his quest for a more durable sales recovery.

The ramp-up in advertising over the past year has helped draw shoppers back into H&M stores and online, offsetting some of the drag from an uncertain economic climate and rising trade barriers.

Still, analysts see only modest sales expansion ahead, with margins expected to recover slowly and remain below historical levels. H&M has lagged behind Spanish fast-fashion retailer Zara, which has a leaner supply chain and a faster fashion cycle. Ervér will need to show that the company’s investments in store upgrades, supply-chain efficiency and improved collections can drive lasting growth.

Over the past year the company’s shares returned about 25 percent, supported by buybacks and the continued stock purchases by the founding Persson family. By the end of year, the family had grown its stake, giving it more then 85 percent of the company’s voting rights and spurring speculation that H&M would eventually be taken private.

By Rafaela Lindeberg, Jenny Che

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