H&M Q1 Sales Dip in First Results Under New CEO Daniel Ervér
PARIS — It was a mixed bag for H&M Group in the first quarter, with sales down two percent in local currencies year-over-year, while the first numbers from early March were up by two percent in local currencies.
These are the first results presented under new chief executive officer Daniel Ervér, who took the reins in a surprise move announced Jan. 31.
Ervér highlighted that the company’s top priority is to hit a 10 percent operating margin in 2024 and it is continuing on that path, improving sales, cutting costs and controlling inventory.
“Development continued in the right direction in the first quarter with an improved gross margin and operating profit, lower inventory and strong cash flow,” Ervér said.
“Through continued cost control, better precision in our collections and close cooperation with our suppliers, we now stand better equipped. We are fully focused on driving profitable growth going forward. Our stronger gross margin enables us to enhance the customer offering further and provide more value for money through improved quality and better prices,” he added.
Operating profit was up to 2.08 billion Swedish kroner, or 181.4 million euros, as it seeks to hit that goal. That far exceeded analysts expectations, which had anticipated that profit number at around 125 million euros.
“We think H&M has taken various steps to improve its omnichannel offer for customers, which should lead to it broadly holding its own in major markets. But we think H&M is very much in ‘trading sales for profits’ mode which is leading to margin improvement but some pressure on volumes. As such we think it may have to reinvest sourcing gains at some point to drive volume as it appears to be losing some [like-for-like] share in major markets,” said RBC analyst Richard Chamberlain.
But markdowns at the beginning of the year continued to bite, with discounts about half a percentage point higher in the first quarter year-over-year.
To improve sales, H&M is launching an ambitious makeover plan and will refurbish about 25 stores worldwide in 2024 including in New York, London, Berlin and Stockholm, while investing in AI to monitor inventory levels and product mix.
The group has implemented strong cost control measures after a spate of layoffs last year, and that discipline is paying off so far. Selling and administrative expenses decreased in the first quarter by three percent in local currencies, and the cost-cutting program is expected to result in savings of 2 billion Swedish kronor, or about 175 million euros, once fully implemented.
“We are also continuing to simplify our organization to make it more efficient and faster. Other examples of ongoing improvements include increased nearshoring and enhanced efforts in digitalization and AI, enabling customers to access the most relevant fashion each time they meet with us. The quarter’s sales gradually improved during February with well-received spring collections, which is a positive sign that we are on the right track,” said Ervér.
Portfolio brands including COS, Monki, & Other Stories and Arket performed more strongly than the flagship H&M, with sales up eight percent in local currencies in the first quarters.
About 30 percent of group sales are online, the company said, and it has about 200 million customers in its loyalty program.
