H&M, the world’s second-largest fashion retailer has reported stronger than expected first quarter operating profit, according to the CEO Daniel Ervér’s statement on Wednesday, 27 March, 2024.
The Swedish company has been facing increased competition from competitors such as Zara and Shein, which had led to a decline in market share. The company’s new CEO has emphasized sales growth over previous focus on profitability.
Outperforming Predictions
H&M’s market share has been encroached upon by Shein in the lower price segment. Shein is an online fast-fashion retailer known for its highly affordable clothing and accessories. Zara is the bigger competitor that has extended its hold in the sector.
Considering that, H&M has reported a respectable quarterly operating profit of 2.08 billion crowns ($196 million), marking a significant growth from the previous year’s 725 million. This surpassed the predicted growth expected by analysts in a London Stock Exchange Group survey. Their shares went up 13%, marking their strongest performance since June.
The company saw a 2% fall in first-quarter sales, which was less than what analysts had anticipated. Additionally, sales at the start of their second quarter saw a 2% increase, highlighting a heightened demand for their products. The CEO stated that their spring collections, featuring a vibrant colour scheme of blue, white and silver, have resonated well with their customers.
According to Ervér, part of the growth in sales can be attributed to increased discounting in the first quarter. There are plans for further markdowns in the current quarter in order to attract new customers and increase purchasing rates.
A Diversified Portfolio
While the company is typically known for its rather pocket-friendly ware, it has diversified to include expensive clothing as well under the H&M brand as well as its other concept brands such as COS.
Ervér stated that their newly-opened stores in New York, South of Houston Street (USA) and Chelsea area (UK) are geared towards consumers with a higher purchasing power. However, he does anticipate that the retailer will offer lower prices on an average by the end of 2024, as compared to the beginning of the year. H&M aims to achieve an operating profit margin of 10% this year, which would be a significant increase from 3.9% in the first quarter.
Sales from other H&M brands such as Monki, COS and Weekday saw 8% growth in the first quarter, surpassing the performance of parent brand.
Looking Forward
In a bid to enhance their in-store experience, H&M announced its plan to refurbish approximately 250 stores this year, marking a notable uptick, compared to the previous year. Also, it aims to inaugurate 100 new stores, targeting primarily growth markets, while simultaneously shuttering 160 stores in more established markets, thereby reducing its overall store count.
These activities are taking place under H&M’s new CEO. Daniel Ervér took over after the previous CEO, Helena Helmersson, quit out of the blue this January. He has stressed that the company must aim to be a credible clothing brand for its core customer base – young women – who he considers “tremendously important” to the company.
