H&M beats expectations by staying in the black

STOCKHOLM: Swedish clothing giant H&M said Thursday its net profit more than doubled in the first quarter, defying expectations as analysts were expecting a loss.

Shares in H&M surged following the announcement, rising nine percent in the early hours of trading on the Stockholm stock exchange.

“Although the world around us remains challenging, we are seeing several areas where developments are going in the right direction,” chief executive Helena Helmersson said in a statement.

The world’s second largest clothing retailer posted a net profit of 540 million kronor ($51.9 million) for its first quarter – which runs from December to February.

Analysts surveyed by Bloomberg were expecting an average loss of more than one billion kronor.

A year earlier, the company reported a first quarter profit of 217 million kronor.

Net sales rose 12 percent to 54.9 billion kronor for the quarter, but the growth was strongly driven by currency effects and in local currencies the growth was instead three percent.

Growth was driven by its two main markets, western Europe and the Americas, which more than offset a decline in eastern Europe owing to the closure of H&M’s Russian shops after the invasion of Ukraine.

Last quarter, H&M announced an unusual loss, reigniting fears of the sustainability of its low-cost model of ready-to-wear retail.

In addition to a widening gap with rival and world leader Inditex – owner of Zara – H&M has also taken hits from high inflation and the emergence of new competitors offering even lower prices, such as Chinese online retailer Shein.

In November, the group announced a major cost-cutting plan, including 1,500 job cuts.

“The external factors that influence purchasing costs continue to improve, work on the cost and efficiency programme is proceeding at full speed, and many of the changes that we have made in recent years are starting to have an effect,” Helmersson said.

“At the same time, the spring collections have been well received in the markets where spring has arrived,” she added.