Hennes & Mauritz AB’s profits and share prices surged after the struggling Swedish clothing retailer showed progress coping with a high build-up of unsold garments, raising hopes that the worst may be over after a three-year slump in earnings.
The brand claims that the sale of its summer collection is off to a good start.
The company had already announced headline sales figures for Q2, but the upbeat comments on trading helped push shares in the Swedish fast-fashion retailer almost 14 per cent higher in Stockholm yesterday.
Despite better sales figures, they have decided to open fewer stores than planned in order to pump investment in online operations instead. H&M said it would curtail its store opening programme, with 130 stores set to open worldwide against a previous target of 175.
“We have decided in certain markets to hold back from new openings. We think rents are higher than they should be,” said Chief Executive Officer of H&M, Karl-Johan Persson.
In contrast, online sales rose by a fifth in local currency terms during the second quarter.
The reason for slump in earnings was identified to be the build-up of inventory and the need to cut prices in order to sell stock. “Inventory increased by less than sales, the composition of inventory is better and markdowns are lower,” Persson said.
A pick-up in revenue growth at the start of the third quarter, aided by a heat wave in Europe, is boosting optimism that the retailer may have returned to a level of sales growth that could gradually put the inventory issue behind it.
H&M pledged to reduce discounts for a fourth consecutive quarter as it aims to reduce its 40-billion kronor (US $ 4.5 billion) build-up of unsold garments.
