H&M hails full-price and summer sales rise, says omnichannel focus is paying off

By

Sandra Halliday

Published
Jun 27, 2019

Fashion retail giant H&M’s sales may have grown in Q2 but on Thursday the company reported a small drop in the quarter’s pre-tax profit figure. Yet there was plenty of encouraging news too as the company also said its summer collections were selling well and June sales in local currencies have risen a strong 12% so far.

That’s an impressive feat to achieve at a time when a number of other fashion vendors are bemoaning the unpredictable weather in late spring and early summer that has dented their summer collections’ appeal.

Looking at Q2, H&M said the three months to the end of May saw net sales rising 11% to SEK57.47bn, with a 6% local currencies rise (offering more evidence of just how good its June performance has been). Online sales rose 27% in total and 20% in local currencies during Q2. Gross profit was SEK31.8bn, up from SEK29.1bn but with a lower gross margin of 55.4% (it had been 56.1% this time last year).

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As mentioned pre-tax profit after financial items was down a little, hitting SEK5.9bn after SEK6bn a year ago. And after-tax profit dipped to SEK 4.5bn from SEK4.6bn. 

Why the drop? “As customer satisfaction and sales increase, the group has intensified its transformation work even further, which had a dampening effect on earnings development,” it said, which basically means more investment in future growth.

Net sales for the first six months of the year also rose 11% to SEK108.4bn, although they were up a slightly lower 5% in local currencies. But the firm said that “ongoing transformation work has contributed to continued positive sales development with more full-price sales, lower markdowns and increased market share.”

H1 profit after financial items fell to SEK6.9bn, down from the prior year’s SEK7.2bn, although the previous year had seen a one-off SEK408m boost due to US tax reforms.

The company said that with the summer collections selling well, it estimates that the cost of markdowns in relation to sales will decrease by around 1.5 percentage points in Q3 year-on-year, the fourth successive quarter with a reduction in markdowns.

DIGITAL FOCUS

The firm has continued to open new stores but also said Thursday that it’s “accelerating its adaptation to customers’ changed shopping patterns and has revised the number of new stores downwards in favour of even more digital investments.”

The net addition of new stores for the year will be around 130, which is 45 fewer than planned. That means a bigger focus on webstores and in Q2, H&M opened its Mexico e-store. Thailand, Indonesia and Egypt “will become new H&M online markets via franchise during the second half,” we’re told. This autumn will also see H&M launching on India’s largest e-commerce platform Myntra and in China, & Other Stories will open on Tmall.

CEO Karl-Johan Persson hailed the fact that the “group continues to increase full-price sales, reduce markdowns and increase market share, showing that customers appreciate our collections and the improvements we are making to the product assortment and the customer experience.”

He also said “sales developed well in most markets” with US sales up 17%, sales in Mexico up 25%, India rising 39%, Russia up 19% and Poland up 11% in local currencies. Sales “also grew in the UK and Sweden where we took market share despite challenging market conditions.”

And Persson clearly thinks there’s plenty of growth potential still out there if its focuses on customer-pleasing developments and omnichannel, although investment in these will dent profits. “By continuing to integrate our physical and digital channels we are making the shopping experience inspiring, easy and convenient for customers wherever we meet them,” he said. “This and other extensive investments are driving costs in the short term. 
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“For example, our new online platform and our new logistics systems have not yet achieved full efficiency, but for customers have resulted in improvements such as faster and more flexible deliveries and a more seamless shopping experience.”