Chilly June dents Q3 for H&M but it sees September uplift

H&M’s net sales dipped in Q3 due to unseasonal June weather, the fashion retail giant announced on Thursday, also saying that its earnings margin goal for the year won’t be achieved as its performance in the quarter clearly lagged that of its peer Inditex. But September sales appear to be brining better news.

As well as the net sales drop from June to August, the company saw sales in local currencies flatlining. Net sales fell to SEK59.011 billion (€5.2bn/£4.3bn/$5.8bn) from SEK60.897 billion.

The company said gross profit was down too, falling to SEK30.133 billion from SEK 31.015 billion, although at least the gross margin edged up to 51.1% from 50.9%.

That came as selling and administrative expenses increased by 1% to SEK26.602 billion and rose 4% in local currencies. 

Operating profit was below analysts’ expectations and fell to SEK3.507 billion from SEK4.739 billion, with the operating margin narrowing to 5.9%, although excluding currency translation effects and winding-down costs, the operating margin was “comparable” with the previous year.

Profit after tax dropped to SEK2.307 billion from SEK3.319 billion.

That doesn’t look great, but the company said that this month, the autumn offer has been “very well received and [September] sales are expected to increase by 11% in local currencies” year on year.

Additionally, a number of initiatives have been launched this month, such as upgrades to physical stores and the rollout of a new digital experience, while that autumn collection launch comes with “with brand-reinforcing events and collaborations”.

The third quarter was clearly a disappointment but the full nine months results were slightly better, if not exactly inspiring.

In the nine-month period, net sales fell to SEK172.285 billion from SEK173.385 billion and again, in local currencies, they were flat. Gross profit increased to SEK91.357 billion from SEK87.239 billion, which corresponds to a gross margin of 53%, up from 50.3%.

Selling and administrative expenses increased by 1% in SEK and local currencies, but operating profit rose to SEK12.682 billion from SEK10.205 billion, corresponding to an operating margin of 7.4%, up from 5.9%. Post-tax profit jumped 19% to SEK8.503 billion.

CEO Daniel Ervér was relatively upbeat despite the lacklustre Q3. He said: “Despite a challenging start, we are concluding the quarter with sales on par with last year in local currencies and with good cost control. We are strengthening the H&M brand by investing in products, the shopping experience and marketing, which we are already seeing start to make an impact and which will contribute to increased sales and profitability.”

In further comments, he said that during the quarter the firm “primarily focused on creating a strong assortment that gives the customer the best value for money while also upgrading both the physical and digital store experience. The quarter started with slow sales in June due to cold weather in many of our key European markets. In July and August we saw sales pick up, with even stronger sales development in September.”

He also said that without the currency translation effects and winding-down costs that dented Q3, the operating margin was comparable with last year, despite a significant increase in marketing costs in the quarter that “aim to strengthen the H&M brand in the long term, starting from the launch of the autumn collection.”

And he seems very upbeat about that autumn offer, adding: “The autumn collection represents the best of H&M: fantastic fashion and good quality at the best price, in a sustainable way. With an even better experience in both our digital and many of our physical stores, as well as collaborations and unique events, we’ve raised the bar for H&M. Charli XCX is the face of the campaign, supported by both global and local artists and models. The first collections of the autumn have been very well received by customers, with good sales and strong resonance on social media.”

Overall, he explained that “2024 is a year in which we’re laying the foundation for future growth.” But “external factors have impacted our sales revenue and purchasing costs more than we expected. At present we estimate that this year’s operating margin will be lower than 10%.”

Post-period-end, future-focused developments have included he first flagship store for H&M Beauty in Sweden that was opened in September; and the forthcoming launch of digital stores on Douyin and Pinduoduo, two of China’s biggest e-commerce platforms. Further out, the first H&M store in Brazil will open in São Paulo at the end of 2025.