By Greta Rosen Fondahn and Helen Reid
STOCKHOLM (Reuters) -Swedish fashion group H&M reported on Thursday a substantially larger than expected rise in third-quarter profit as customers responded well to its autumn collections, although the company warned of a tariff-related impact in the current quarter.
Shares in the world’s second-largest listed apparel retailer soared 10% in mid-morning trade, taking a year-to-date rise to 16%.
“The autumn collections have been well received,” H&M said in a statement.
NEW CEO TARGETS FASHION-CONSCIOUS SHOPPER
Daniel Erver, CEO since January 2024, has been working to improve profitability and appeal to shoppers with trendier styles, aiming to compete with fast-fashion rivals Shein and Inditex’s Zara as the sector contends with disruption from U.S. tariffs.
“We are taking further steps in the right direction,” he said on Thursday.
After two consecutive quarters of falling earnings, H&M said June-August operating profit jumped to 4.91 billion crowns ($523 million) from a year-ago 3.51 billion supported by a 2% increase in local-currency sales, a stronger product mix and tighter cost control.
Analysts polled by LSEG had on average forecast a profit of 3.68 billion crowns.
H&M cautioned that tariffs on imports would weigh more heavily on margins in the current quarter, which runs through November.
JP Morgan analysts said the profit beat may prompt higher expectations for the full year, noting meanwhile that the comment on tariff impact may be slightly more subdued than some had anticipated.
MORE IN-SEASON SHOPPING AT FULL PRICE
Analysts at JP Morgan and Alphavalue also welcomed a 9% drop in inventory levels as the retailer said shoppers were buying more products in season – at full price rather than in end-of-season sales.
H&M said markdowns in the quarter were marginally bigger than a year ago, and that it expects them to be up somewhat in the fourth quarter, partly because Black Friday falls one day earlier.
Sales in reported currency fell to 57.0 billion crowns from 59.0 billion, slightly above the expected 56.8 billion.
The company said it expected local-currency sales in September to be flat compared with an unusually high year-ago figure.
H&M, whose customer base is considered more price-sensitive than Inditex’s, has faced greater pressure in recent years as consumers tighten spending amid higher living costs and global uncertainty.
The outlook for higher U.S. tariffs has pushed H&M to seek suppliers closer to the U.S. market – its second-biggest after Germany, accounting last year for 13% of group sales.
($1 = 9.3940 Swedish crowns)
(Reporting by Greta Rosen Fondahn and Helen Reid, writing by Anna Ringstrom; Editing by Louise Heavens)
