• Q2 net profit rise to SEK5.9bn (US$693m) 
  • Sales including VAT increased 10%
  • Gross margin narrows to 57.1% from 57.6% 
H&M said the profit increase in the second quarter is mostly explained by continued expansion and tight cost control

H&M said the profit increase in the second quarter is mostly explained by continued expansion and tight cost control

Swedish fashion group Hennes & Mauritz (H&M) said it will continue to invest and develop its business with a digital focus as its expansion helped to boost sales and earnings in the second quarter.

For the three months ended 31 May, the retailer saw net profit rise to SEK5.9bn (US$693m) from SEK5.4bn a year earlier, with gross margin narrowing slightly to 57.1% from 57.6% in the previous year. H&M said the profit increase in the second quarter is mostly explained by continued expansion and tight cost control.

Group sales, including VAT, increased 10% during the quarter to SEK59.5bn from SEK54.3bn in the year-ago period. The company said it saw "continued rapid and profitable growth" of the group's online sales, which in some established markets already account for 25% to 30% of total sales.

It added the profitability of the group's online sales is in line with that of the physical stores, and it estimates the group's online sales will grow by at least 25% per year going forward.

Meanwhile, group sales, including VAT, for the month of June are expected to increase by 7%.

"Sales in the UK, Scandinavia and Eastern Europe as well as in many of our growth markets were good," said CEO Karl-Johan Persson. "However, it was more challenging in several of our major markets such as the US, China, the Netherlands and Switzerland.

"H&M's online sales developed very well and continued to increase its share of total sales. The development of COS, & Other Stories, Monki, Weekday and H&M Home remained very strong, both in stores and online."

Meanwhile, the new Arket brand, which H&M said received "fantastic reviews" at previews during the spring, will be launched later this year, with five stores and 18 online markets.

H&M reveals plans for first Arket stores

For the six month period, group sales including VAT increased by 9% to SEK113.9bn, and excluding VAT amounted to SEK98.4bn from SEK90.6bn. Profit after tax increased to SEK8.4bn from SEK7.9bn in the prior year.

H&M says it plans to launch online in the Philippines and Cyprus later this year, in addition to the six online markets that have already opened in 2017.

The company posted a monthly sales increase in May, albeit slower than expected, with group sales including VAT increasing 4% in local currencies compared to the same month the previous year.

H&M sales growth slows in May amid "tough market"

Meanwhile, Persson says H&M will continue to invest and develop its business with a digital focus to give its customers the best possible shopping experience. This includes the improvement, diversification and expansion of the retailer's online offering, including faster delivery options and more payment alternatives; integration of physical stores with online; development of the store portfolio, including rebuilds and relocations that will lead to around 100 store closures during the year; and supply chain optimisation, to boost speed, efficiency and flexibility.

"We are convinced that the investments we have made and are making will result in continued profitable growth for many years to come," adds Persson. "A clear focus for us is to continue to develop our business with quality at a fast pace and thereby strengthen the H&M group's position even further in a growing and rapidly changing market."