STOCKHOLM (Reuters) - Swedish fashion group H&M said sales of its summer collections had started well and it would slow the rate of store openings as it invests more online, boosting its shares by 10%.
The world’s second-biggest fashion retailer after Zara owner Inditex said on Thursday sales growth accelerated to 12% in local currencies in June, the first month of its fiscal third quarter, from 5% in the second quarter.
That beat analysts’ expectations as well as the 10% rise Inditex reported for the six weeks from the start of May.
Chief Executive Karl-Johan Persson told Reuters the arrival of warmer weather in Europe had helped.
Northern European markets, where unusually cold weather dampened demand for summer ranges in the second quarter, did particularly well in June as temperatures climbed, he said.
Better collections from the core H&M brand and purchasing improvements that allowed the company to respond more quickly to demand also helped in June, he added. “It’s partly due to external factors, but we also do things better than we did a year ago. Underlying levels are sounder,” Persson said.
H&M also said it was cutting the net number of new stores it plans to open in 2019 to around 130 from 175, as it invests more in digital features across the business.
Persson said openings were shelved mainly in Europe, but also in the United States and China. More store closures will contribute to the new net total as well.
ADAPTING TO CHANGE
Executives at a news conference stood by H&M’s capital spending forecast for the year as a whole, reassuring analysts who had feared more pressure on margins from higher investments, after the firm said recently it had intensified its work to adapt to a rapidly changing retail landscape.
At 1205 GMT, H&M shares were up 7.9%, having earlier touched a seven-week high of 161.40 Swedish crowns.
“The fact that June sales get a boost, more so than the trend we’ve seen in the past several quarters, is a highlight for me,” Danske Markets analyst Daniel Schmidt said, adding the reduction of store openings was also a welcome development.
“It shows that they more and more are taking on board the changes that are occurring (in the retail sector).”
Despite investing heavily in logistics, digital technology and store concepts, and reviewing its mix of stores and brands, H&M has struggled to convince investors it is back on track.
Its shares remain far off 2015 record levels and little above the 13-year low seen in 2018.
H&M reported a pretax profit for the three months to the end of May, its fiscal second quarter, of 5.9 billion crowns ($640 million), down from 6.0 billion a year earlier, slightly shy of analyst expectations.
The gross margin shrank 1%, in line with expectations.
H&M has seen profits fall and inventories rise in recent years as its core budget brand has not kept up with rivals, particularly online, and not reacted fast enough to demand swings.
Inventories grew 11% to 40.4 billion crowns at the end of the second quarter, equivalent to 18% of sales. But H&M said the composition of the stock had kept improving.
Markdowns fell for a third straight quarter, by 1 percentage point in relation to sales, and H&M said it expected them to fall by a further 1.5 percentage points in the third quarter.
“We think H&M is improving its offer, which should lead to a sales and earnings recovery in time, albeit with execution risk and in an ongoing tough competitive environment,” said RBC Capital Markets analyst Richard Chamberlain.
($1 = 9.2709 Swedish crowns)
Reporting by Anna Ringstrom and Niklas Pollard; Editing by Emma Thomasson, Keith Weir and Mark Potter
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