H&M: profit margins improving, gradual recovery

H&M logo on a store in Germany
nitpicker / Shutterstock.com

Some good news for H&M: the first quarter of 2019 saw far better profit results than expected. Margins are increasing again, as the Swedish fashion giant is no longer forced to offer so many discounts.


Better than expected

H&M's profit loss was nowhere near as bad as expected. Analysts see the first signs of recovery after some difficult years in which the fashion giant was left with large quantities of unsold stock due to heavy (online) competition and pressure on the prices. The chain also became less popular with the consumer.

"Our ongoing transformation work has contributed to stronger collections with increased full-price sales, lower markdowns and increased market shares,” CEO Karl-Johan Persson said in a statement. Although the change of course has had a negative impact on the short term, the CEO believes that in time the Swedish retailer will achieve a faster, more flexible and more efficient product flow.


Ten percent turnover increase

Profit before taxes decreased for the seventh quarter in a row, reaching 1.04 Swedish crowns (100 million euros), 18 percent less than the year before. But analysts had expected worse: on average, they had assumed profits would sink down to 708 million crowns (68 million euros).

Margins also improved: the gross margin saw a slight increase from 49.9 percent to 50. In the past quarter, turnover (in local currency) is said to have increased by 10 percent, ending at 51 billion Swedish crowns (4.9 billion euros). This is partly due to the fact that the fast fashion giant was able to afford to have lower discounts.

Top executive Persson believes that the coming period will see fewer and fewer discounts. "It’s still a shaky market and we are still in a transition period, but we believe in gradual improvement," he said. Turnover increased by 7 percent in March.