H&M back in profit for Q3 as sales start to recover
H&M reported its nine-month results on Thursday and, understandably, sales were lower in the period from last December to the end of August, with the company swinging to a loss.
But what was most interesting was its information about Q3 in particular when it returned to profit, and what happened in September as sales started to recover post-pandemic in many markets. In fact, sales in September fell by ‘only’ 5% in local currencies year-on-year. Currently 166 stores, representing 3% of its total are still closed, although a large number of stores still have local restrictions and limited opening hours.
Looking at Q3, the Swedish fashion retail giant said the period from June to August saw net sales falling 16% in local currencies, or dropping to SEK50.87 billion (€4.8bn/£4.4bn/$5.6bn) from SEK62.57 billion on a reported basis. Sales have been falling for much of the year, but 16% was a much a smaller percentage than in Q2 when sales had just about halved. Obviously, the pandemic still had an effect and sales were never going to be anywhere near normal as the quarter opened with 900 of its 5,000+ stores still being closed. By the end of the quarter, 200 stores still remained shuttered and, as mentioned, this figure has reduced to 166 since then. The quarter’s gross profit dropped to SEK24.85 billion from SEK31.81 billion in the prior year’s Q3, but at least it was a profit. This corresponds to a gross margin of 48.9%, down from 50.8% last time. Profit after financial items was SEK 2.36 billion, which beat analysts’ forecasts. Excluding IFRS 16, profit after financial items plunged to SEK2.26 billion from SEK5 billion. Looking at the nine-month period, sales were “significantly negatively affected by the Covid-19 situation, particularly in the second quarter when stores were temporarily closed in most markets”. At its worst, around 80% of the firm’s stores were shuttered globally. Net sales fell to SEK134.48 billion from SEK171 billion a year ago as Q2 included the height of the pandemic. That meant the company made a loss for the nine months of SEK1.613 billion after financial items and a net loss of SEK1.24 billion. Excluding IFRS 16, the loss was SEK1.847 billion, much worse that the profit of SEK11.98 billion a year earlier. Given the September and Q3 figures, the firm is clearly on a recovery trajectory even though it’s far from business-as-usual as fashion sales remain challenged globally. And in fact, it’s unlikely that there will ever be a return to trading exactly as it did pre-pandemic as so much has changed. One point it did make in the earnings report was that its omnichannel model, “which combines strong and profitable online growth with optimisation of the store portfolio, is gradually leading to increased value creation”. The “rapid changes in customer behaviour have been accelerated by Covid-19,” it said, so it’s “now stepping up the pace of its transformation work further, with digital investments, optimisation of the store portfolio and increasingly integrated channels”.