Fashion Retailer H&M's Second-quarter Profit Beats Expectations

Sweden's H&M, the world's second-biggest fashion retailer, on Wednesday reported a 33% growth in quarterly profit which beat expectations, as shoppers flocked to its stores in the aftermath of the pandemic.

The company reported a pretax profit of 4.78 billion Swedish crowns ($470.76 million) in the second quarter, up from 3.59 billion crowns a year earlier. Analysts polled by Refinitiv had on average forecast a 3.87 billion crown profit.

"Sales in physical stores increased substantially while online continues to do well," Chief Executive Officer Helena Helmersson said in a statement.

Sales were up 12% year-on-year when measured in local currencies, at 54.5 billion crowns in its fiscal second quarter, the Swedish company said in a statement. Analysts polled by Refinitiv had on average predicted sales of 52.8 billion crowns. Its biggest rival Inditex, the owner of Zara, had also reported an 80% jump in first-quarter profit on the back of soaring sales.

H&M said sales in June are expected to fall by 6% in local currencies compared with a year earlier, mostly because of the halting of its business in Russia, Ukraine and Belarus.

The company has temporarily closed its stores in Russia in March after Russia's invasion of Ukraine in late February. The country was H&M's sixth-biggest market with 4% of sales in the fourth quarter of 2021.

It also closed stores in China, where consumer demand has slumped due to COVID-19 lockdowns.

High raw material and transport costs have been a hurdle for fashion retailers and companies have been passing them to consumers by hiking prices.

"Disruption and delays still exist in the supply chain, but are gradually being eased," Helmersson said.

Despite increased costs, an increase in full-price sales and decrease in markdowns helped H&M to increase operating margins to 9.2% from 8.3%.

($1 = 10.1538 Swedish crowns)