Ervér makes good start at H&M Group as Q1 looks stronger

H&M Group released its first set of results under the leadership of CEO Daniel Ervér on Wednesday and he seems to have got off to a good start because while Q1 saw net sales down, profit rose. 

He said that February’s sales in particular “gradually improved, with well-received spring collections, which is a positive sign that we are on the right track”. And further evidence of this was that sales in Q2 so far (that is, March to-date) have increased by 2% in local currencies.

There’s certainly still a lot of work to do and Ervér isn’t underestimating the task ahead of him. But the still-new CEO took an upbeat stance as he explained that the upgrading of the group’s stores is being accelerated, “for added inspiration and relevance to customers” with the firm refurbishing around 250 stores globally in 2024, including in New York, London, Berlin and Stockholm. 

It’s also continuing to simplify the organisation “to make it more efficient and faster”, as well as “increased near-shoring and enhanced efforts in digitalisation and AI, enabling customers to access the most relevant fashion each time they meet with us”.

So, what about those Q1 numbers? The quarter, which is the three months from December to February, saw operating profit of SEK2.08 billion (€181m/£155m/$196m), up from SEK725 million a year earlier. Analysts on average had expected a figure of around SEK1.43 billion. The figures meant an operating margin of 3.9%, up from 1.3% a year earlier.

Net sales were SEK 53.699 billion, down from SEK54.872 billion, which isn’t great news. But that was a narrower fall than analysts had predicted and gross profit increased by 7% to SEK27.655 billion for a gross margin of 51.5%, up from 47.2%.

Profit after tax rose to SEK1.201 billion from SEK540 million.

The world’s second-largest fashion retailer (after number one, Inditex) has been focusing very clearly on driving more profitable sales in recent periods, including under Ervér’s predecessor Helena Helmersson, and it appears to be getting towards the results it wants, even if it can’t yet be said to be firing on all cylinders. Investors seem to think it’s on its way though and sent its share price up slightly on Wednesday morning.

On the day, Ervér said that “development continued in the right direction in the first quarter with an improved gross margin and operating profit, lower inventory and strong cash flow. Our top priority is to continue improving the customer offering, the store experience and the supply chain in order to increase sales”.

He added that the company has “a fantastic position with billions of visits a year to our physical and digital stores. We have more than 200 million customers in our loyalty programme, in a global market that external market analysts expect to grow by more than 5% a year up to 2028”.

He highlighted the “steps in the right direction”, with a gross margin of 51.5%, the substantial improvement in operating profit, inventory down by 7% and continued strong cash flow.

And apart from the future focus points mentioned at the start, “continued cost control, better precision in our collections and close cooperation with our suppliers” are all on the agenda with the aim of “driving profitable growth going forward”.

The CEO said that the group’s “stronger gross margin enables us to enhance the customer offering further and provide more value for money through improved quality and better prices”.

The company is “strengthening all parts of our assortment and our design organisation’s most important mission is to create attractive collections”.