Hennes & Mauritz said it expected to return to profitability as the world’s second-biggest clothing retailer enjoys a stronger recovery from coronavirus than expected.
The Swedish group forecast on Tuesday a pre-tax profit of about SKr2bn ($230m) in its third quarter, which runs from June to August. That is far above the consensus analyst forecast of SKr350m, according to Refinitiv.
Shares in H&M rose by 12 per cent on Tuesday morning to SKr160.30.
The fast-fashion chain credited fewer discounted sales and strong cost control with helping it rebound from the impact of coronavirus lockdowns across Europe and the US, which at the peak of the pandemic closed four in five of H&M’s stores.
It plunged to a pre-tax loss in its second quarter — which runs from March to May — of SKr6.5bn from a profit of SKr5.9bn a year earlier.
H&M’s sales have gradually recovered from their nadir in mid-April and in the third quarter its revenues fell 19 per cent compared with a year earlier to SKr50.9bn, just below the average analyst forecast of SKr51.9bn.
By the end of August, about 200 of H&M’s 5,000 stores were still closed due to coronavirus, down from 900 at the beginning of June and 4,000 in April.
Helena Helmersson, H&M’s chief executive since the end of January, told the Financial Times in June that the family-controlled group was hoping to come out of the coronavirus crisis “stronger”.
It has firmly increased its online sales and improved flexibility in its supply chain. After decades of expansion globally, it is forecasting it will close more physical stores this year than it will open new ones.
Analysts at Citi noted that while there was little surprise in terms of sales, profitability was significantly better than investors were expecting, implying a lift of about SKr1.5bn in analysts’ pre-tax profit forecasts for 2020.
“The sales performance was as expected but the better gross margin and cost control will be taken positively by the market given the high short interest and more recent negative sentiment on the stock,” Citi analysts wrote in a report.
H&M suspended its dividend and cut its planned investments in half for 2020 as senior managers took a three-month pay cut of 20 per cent. The retailer has also reduced rent bills and marketing costs as it seeks to compensate for the sharp fall in sales.
The Swedish group has undergone a transformation in recent years after it lost its crown as the world’s largest fashion retailer a decade ago to Inditex, the Spanish owner of Zara, and suffered a slump in profitability.
Questions now remain about how long it will take to see sales return to their pre-Covid-19 levels. H&M reports full third-quarter results on October 1.