H&M group net sales increased 3% in Q2 from 1 March to 31 May 2024 to SEK59.6bn ($5.6bn) from SEK57.6bn during the same period the year before.
The company's operating income increased to SEK7.1bn from SEK4.7bn the year before, which corresponded to an operating margin of 11.9%.
H&M CEO Daniel Ervér said “We achieved our best results for many years in the second quarter, showing once more the H&M group’s strength and robust financial position, with strong cash flow as well as improved profitability and sales."
He added that the company is raising its ambitions further to strengthen its brand, customer offering and shopping experience, and explained: "With a focus on our customers, committed colleagues and a faster pace of investment in the second half of the year we see good conditions for continued profitable, long-term and sustainable growth.”
The company's gross profit in Q2 went up 11% to SEK33.6bn from SEK30.3bn and this corresponds to a gross margin of 56.3% compared to 52.7% previously.
H&M Q2 key results
- Group net sales rose 3% to SEK59.6bn ($5.6bn)
- Operating income went up to SEK7.1bn from SEK4.7bn
- Gross profit increased 11% to SEK33.6bn from SEK30.3bn.
Ervér remains confident that with a sharp increase in profit for four consecutive quarters, the company is "well on the way" to achieving its long-term goal of profitability exceeding 10% over time.
He said: "Our goal of an operating margin of 10% for full-year 2024 remains in place. However, the conditions for achieving that level this year have become more challenging as it is assessed that external factors that influence our purchasing costs and sales revenues, including materials and foreign currency, will have a more negative impact than we expected in the second half of the year."
He highlighted the most important prerequisite for achieving its goal is that sales growth is further strengthened in the second half of the year compared with the second quarter increase.
Disappointing June sales and stiff competition
H&M admitted that its sales for the month of June 2024 are expected to decrease by 6% in local currencies compared with the same period last year.
GlobalData apparel analyst Louise Deglise-Favre told Just Style that while the group’s operating margin continued to improve, growing from 4.9% to 8.1%, it missed its target of 10%, which combined with disappointing June sales led H&M’s share price to drop around 14% in early morning trade.
She also highlighted that the company's performance remains far behind that of its main competitor Inditex, which rose 7.1% in the quarter to the end of April.
H&M claimed its June figure should be viewed against a strong comparative from 2023 and added that unstable weather in many of its large markets at the start of the month had a negative impact on sales, but sales recovered as the weather normalised at the end of the month. Plus, a well-composed inventory has also enabled a later start to sale compared with the previous year.
Deglise-Favre shared this means the driver of improvement in the second quarter was the eponymous H&M brand itself, thanks to well-received summer ranges, but added "this was clearly short-lived due to the group’s disappointing sales in June".
She noted that H&M continues to invest in elevating its core brand’s image, returning to the high-fashion Met Gala event by dressing celebrities such as Awkwafina and Adwoa Aboah, and planning elevated campaigns for its autumn ranges.
However, she believes these marketing efforts need to be combined with a rehaul of its designs to win back lost market share. It also needs to simplify its pricing structure, as currently its mix of premium and value price points creates confusion on the brand’s target consumer.
H&M focuses on digital experience for autumn offering
H&M remains optimistic for its autumn collection and claims it has "one of the fashion industry’s largest design teams that has created amazing collections" for later this year.
Ervér shared that customers will be able to discover what’s new through global and local fashion campaigns, unique events and inspiring collaborations as well as in its upgraded stores in London, New York, Seoul and Tokyo.
In the second half of the year H&M plans to increase the pace of investment and combine its new store formats with the latest in digital services and locally adapted assortment in stores.
During the spring it tested an updated online store that is is launching in its larger markets in autumn.
Deglise-Favre pointed out the company's online sales continue to account for 30% of its group revenue, and the group plans to launch an updated online store to its largest markets this autumn which combined with the improved digital features of refurbished and new stores should strengthen the group’s multichannel capabilities into a more seamless experience for consumers.
Ervér shared: "The new digital experience will give our customers more inspiration, clearer recommendations on how our products can be styled and which fit is right for them."
He added: "We are also continuing to invest in the supply chain, where we are seeing positive effects from better availability of the right products between the channels and greater precision when the lead time from design to the product reaching the customer is shortened."
H&M H1 key results
In the first half of this year (1 December 2023 to 31 May 2024) H&M reported:
- Group net sales rose 1% to SEK113.3bn
- Operating income increased to SEK9.2bn
- Gross profit increased to SEK61.2bn.
