• Shares in H&M remained up by more than 6% this afternoon (3 October). 
The groups net sales increased by 11% to SEK171.06bn during the first nine months of the financial year

The group's net sales increased by 11% to SEK171.06bn during the first nine months of the financial year

H&M CEO Karl-Johan Persson remains confident the Swedish fashion retailer's transformation strategy is bearing fruit as its efforts helped boost both sales and profit in the first nine months of the year amid a "positive reception" for the group's early autumn collections.

In its nine-month report today (3 October), the retailer said profit after tax amounted to SEK9.23bn (US$933m) during the period from 1 December 2018 to 31 August 2019. This compares to earnings of SEK9.11bn in the year-ago period, however, H&M said profit after tax in the previous year was positively affected by one-off tax income of SEK418m as a result of the US tax reform (Tax Cuts & Jobs Act).

The group's net sales increased by 11% to SEK171.06bn during the first nine months of the financial year. In local currencies, net sales increased by 6% during the nine months, compared to the corresponding period last year. The retailer said the ongoing transformation work has contributed to continued positive sales development with more full-price sales, lower markdowns and increased market share.

For the third quarter, which runs from 1 June to 31 August 2019, H&M reported a rise in profit after tax to SEK3.86bn from SEK3.10bn in the prior-year period. 

Citing "well-received summer collections", H&M said group net sales in the quarter increased by 12% to SEK62.57bn. In local currencies, net sales increased by 8% compared with the corresponding quarter the previous year.

Online sales in the period surged 30% in SEK and by 25% in local currencies.

Sales in local currencies in September 2019, meanwhile, increased by 8% compared to September the previous year.

"Well-received summer collections and increased market share show that we are on the right track with our transformation work to meet customers' ever-increasing expectations," said CEO Karl-Johan Persson. "Continued increases in full-price sales and decreases in markdowns contributed to a 26% increase in operating profit in the third quarter, all while maintaining a high level of activity in our transformation work."

In recent months H&M has said it is focusing on making more investments into digital and logistics. The company in June said it would revise down the number of stores it planned to open in FY2018/19 to 130 as it looks to cater to customers' "changed shopping patterns," namely, bolstering its online presence - all moves it says are part of its wider transformation efforts.

Today, the group said it continues to "actively optimise" the store portfolio through increased consolidation in established markets while continuing its expansion in growth markets. As a result, it has announced the net addition of new stores for full-year 2019 will be around 120, a figure it said is "somewhat fewer" than previously communicated.

The retailer has also announced initiatives in data analytics and AI. At the end of last year, the firm signed a consultancy contract with Cambridge Analytica research director Christopher Wylie to explore how it could harness artificial intelligence to boost its sustainability efforts. And in May this year, it leveraged specially collected data to launch a new custom-made collection for customers in Berlin, Germany.

Persson added through the group's continued investments in technology and the supply chain, it also plans later this year to offer customers the chance to shop online from COS, Weekday, Monki, & Other Stories and Arket in up to 70 or so new markets.

"Our ongoing transformation work to meet customers' ever-increasing expectations is bearing fruit," he said. "The new season has got off to a promising start, with a positive reception for our early autumn collections. Looking ahead, we remain humble considering the challenges brought by the rapid shift in fashion retail. Our transformation work is, therefore, continuing at a fast pace in all parts of the company. We are convinced that this will contribute to positive development for the H&M group for many years to come."

Transformation plan proves effective

Kate Ormrod, lead retail analyst at GlobalData, notes H&M's strategic overhaul, in which the value player has embraced the shift away from physical retail to digital, is beginning to reap rewards.

"The Swedish retailer now expects to only open around a net 120 stores this year, a further reduction on the 175 stores originally planned – though expansion in growth markets remains a priority," she adds. "H&M's CEO Karl-Johan Persson states that there remains a 'high level of activity' in its transformation work, but the scale and coverage of its investment, extending to almost all parts of its business, is notable, and signifies the evolution of the retailer as it strives to satisfy changing consumer demands."

2019 has not been without its challenges, however, especially in the UK, and while H&M remains under pressure from value rivals as well as more frequent discounting from midmarket players, Ormrod says the group's proposition continues to resonate.

Investment in its supply chain, and the plan to open a new logistics centre in Milton Keynes this autumn will aid product availability and speed – crucial for those in the fast fashion segment, she notes, while its longstanding commitment to sustainability sets it apart from other value players. 

"With new initiatives such as green home delivery (for example via cars that run on biogas) in the Netherlands and trialling clothing rental in Stockholm in the autumn, H&M has found its niche which it can continue to exploit as consumer focus on sustainability grows."

Meanwhile, Ormrod notes online growth has accelerated in each quarter of FY2018/19, but says continued investment is necessary to stay competitive – not only among those currently operating, but with Primark still potentially venturing online in the long term, H&M must strengthen its ties with online shoppers to drive top of mind appeal and minimise switching.

She adds: "News leaked in September revealed that the H&M brand is to trial selling third-party products; while the idea holds merit to extend its reach and bolster appeal, with sister brands & Other Stories and Arket already selling external brands, taking on Asos and Zalando is a big ask, so third-party brands are unlikely to become a cornerstone of its proposition.''

Steve Miley, a senior market analyst at www.asktraders.com, says H&M's latest results are "exactly the figures that investors want to see."

He adds: "They provide solid evidence that H&M's transformation is on track after experiencing years of falling profits. With changing consumer habits and tougher competition, it's a challenging climate to be trading in. Yet H&M is showing all the right signs that it is on the path to recovery.

"Investors have remained cautious on the stock whilst they await signals that the recovery is on track, these results do just that. The share price is still significantly off its 2015 peak, however, they are up over 30% year to date as investor confidence rebounds."