Canadians will shop differently because of price increases: Tamara Szames
Hennes & Mauritz AB reported second-quarter earnings that beat analysts’ estimates as shoppers snapped up its low-cost clothing to replenish post-COVID wardrobes. The shares rose as much as 6.5 per cent in Stockholm.
Pretax profit at the Swedish retailer rose by a third to 4.78 billion kronor (US$470 million) in the three months through May, the company said Wednesday. Analysts had expected 3.98 billion kronor. H&M also announced plans to begin a 3 billion-kronor share buyback.
“Well-received collections have led to strong development, with a further increase in full-price sales and decrease in markdowns,” Chief Executive Officer Helena Helmersson said in a statement.
H&M and rival brick-and-mortar retailers have seen a rebound in sales as consumers refresh wardrobes for work and special events after two years spent mostly stuck at home. Still, rising prices for everything from energy to transport and food are stretching shoppers’ budgets and sapping confidence.
While soaring costs are squeezing profitability for some retailers, H&M’s gross margin expanded to 54.8 per cent in the second quarter, topping estimates and reassuring analysts including James Grzinic at Jefferies. Warnings from observers that H&M will see a hit to profitability had contributed to a 28 per cent drop in the share price this year.
What Bloomberg Intelligence Says:
Hennes & Mauritz’s 90-bp higher 2Q gross margin generated good operating leverage as the 17 per cent expense growth matches sales, yet while this is bolstered by an unrealized foreign-exchange gain, the company is clearly restoring its fashion credentials with consumers. The Swedish retailer is also benefiting from the return to in-store shopping at the expense of online. Comparisons for revenue ease in July and August, with the potential for sales to recover from the 6 per cent drop in June.
-- Charles Allen BI retail industry analyst
The company still faces challenges from the war in Ukraine and sporadic lockdowns in parts of China, where H&M has been the subject of a boycott related to its refusal to use cotton from the Xinjiang region. H&M is closing a flagship store in Shanghai, while in Russia it halted sales following the invasion.
Net sales in June are expected to show a decrease of 6 per cent in local currencies from the same month last year, hurt by the sales pause in Russia, Belarus and Ukraine, H&M said.
H&M said it’s looking at ways to “prioritize initiatives, redistribute resources and ensure continued good profitability.”