H&M Group Reports Decline in Gross Profit

Shares of H&M Group (ST:HMb) fell on Thursday after reporting a 2.8% drop in gross profit, amounting to SEK 30,133 million year-on-year.

Net sales for the quarter also decreased by 3.1% year-on-year to SEK 59,011 million.

As of 3:34 am (0734 GMT), H&M was trading 7.6% lower at SEK 167.6.

Despite the decline, the company managed to improve its gross margin slightly, rising to 51.1% from 50.9% in Q3 2023.

CEO Daniel Ervér mentioned that the quarter faced initial challenges due to slow sales in June, attributed to unseasonably cold weather in key European markets.

Operating profit saw a sharper contraction, dropping by 26% to SEK 3,507 million, leading to a lower operating margin of 5.9% compared to 7.8% the previous year.

This decline in profitability was partly due to a rise in selling and administrative expenses, which increased by 1% to SEK 26,602 million. In local currencies, these costs grew by 4%, heightening pressure on margins.

Analysts from RBC Capital Markets noted SEK550 million in costs for Q3, primarily due to long-term marketing investments and winding down costs mainly for Afound.

The result after tax also reflected these challenges, dropping to SEK 2,307 million from SEK 3,319 million in Q3 2023, resulting in earnings per share decreasing by 31% to SEK 1.44 from SEK 2.04.

Cash flow from operating activities weakened, amounting to SEK 8,215 million compared to SEK 12,257 million last year.

Ervér commented that high consumer living costs and external factors have affected sales revenue and purchasing costs more than anticipated.

The company’s stock-in-trade rose by 3% to SEK 41,738 million, indicating higher inventory levels. However, H&M management remains optimistic about the quality of inventory for future demand.

The autumn collection has been positively received, with expectations for a 11% increase in September 2024 sales in local currencies compared to the same period last year.

Looking ahead to Q4, analysts anticipate negative external factors on gross margin, increased markdown costs year-on-year, and slightly higher marketing investment costs compared to Q3.