H&M runs in Stockholm, Q2 profit better than expected

(Il Sole 24 Ore Radiocor) - Hennes and Mauritz is shining on the Stockholm Stock Exchange thanks to the good reception given to its second quarter results. The Swedish ready-to-wear fashion giant's stock gained more than five points, which puts it in first place among the components of the Omx Nordic 40 index and among the best of the Stoxx Europe 600. H&M reported a slightly higher than expected operating profit in the second quarter, while sales fell more than expected. Investors, however, focused on earnings performance rather than revenues, as CEO Daniel Erver stated that his priority is profitability and not just sales growth.

In the second quarter (as of 31 May) H&M reported sales of SEK 56.7bn compared to SEK 59.6bn last year and below the 57bn expected by analysts on average. Operating profit decreased to SEK 5.91 billion (from SEK 7.1 billion), but slightly exceeded the consensus (SEK 5.88 billion), with a margin of 10.4 per cent. "This slightly better-than-expected margin sends a positive signal to the market," noted analysts at Alphavalue.Net profit decreased to 3.96 billion from 5.06 billion last year. "The result for the quarter was negatively impacted by higher purchase prices due to the strengthening dollar and higher transportation costs, but also by the fact that we continued to invest in our customer offering," said CEO Erver.

H&M also pointed out that sales for the quarter in local currencies increased by 1% andwhen shop closures were also taken into account, the increase was 3% compared to last year.The currency effect then had a negative impact of about 6% percentage points, reflecting the strengthening of the Swedish krona. The world's second largest fashion retailer also estimated a 3% growth in local currencies in June revenues compared to the same month last year, despite a negative calendar-related impact of about one percentage point. This is asignificant improvement compared to the 6% drop recorded last year.

"Our plan, focused on the product offering, the shopping experience and the brand, has again been confirmed by the progress we see," said CEO Erver, also emphasisingthe contribution made to profitability by cost control. The ceo added a note of caution, stating that the group, given "the uncertain times that make consumers cautious, continues to closely monitor macroeconomic and geopolitical developments and continually adapt both the customer offering and the business to best meet customer needs". Analysts at Jefferies and Deutsche Bank both maintained a neutral recommendation on the stock.