H&M beats Q3 profit forecasts on higher margins

H&M delivered third-quarter operating profit of SEK 6.04 billion for the June–August period, surpassing the LSEG mean analyst estimate of SEK 5.14 billion. The result highlights a clear improvement in profitability despite only modest sales growth and a slightly smaller store network.

Net sales in the quarter totaled about SEK 57.189 billion. In local currencies, sales grew around 1%, while the company operated roughly 2% fewer stores year-on-year at the end of the period, indicating a focus on efficiency rather than physical expansion.

Gross margin improved to 54.0% in the quarter, compared with 52.9% a year earlier and ahead of the 53.4% level expected by analysts. The comparison with last year is affected by prior one-off tariff-related gains that had boosted the earlier period’s margin, underlining the strength of the latest performance.

CEO Daniel Ervér linked the enhanced profitability to several operational levers. He pointed to purchasing improvements, tighter cost control and generally more efficient operations as key contributors, alongside a higher proportion of in-season buying that helped support margins.

While operating profit and margins improved, revenue trends remained subdued. Sales edged higher in local currencies but were broadly flat in reported terms, reflecting a challenging retail environment combined with H&M’s reduced store count.

Looking ahead, H&M expects September sales to increase by about 1% in local currencies, signaling a continuation of the current demand pattern rather than a significant acceleration. At the same time, the company has cautioned that markdown costs as a share of sales are likely to be slightly higher in the fourth quarter than a year earlier.

The outlook suggests management is balancing efforts to protect profitability with the need to stimulate demand and manage inventory. The combination of disciplined cost control and targeted markdowns will be key to sustaining the margin gains seen in the latest quarter.

The quarter’s results underscore H&M’s emphasis on operational discipline. The increase in gross margin despite limited top-line growth and fewer stores points to the impact of more efficient sourcing and inventory management.

A greater share of in-season buying is intended to align collections more closely with customer demand, allowing the retailer to rely less on heavy discounting. Together with cost savings and process improvements, this approach has supported the earnings beat in the latest quarter, while guidance signals continued caution on promotional activity in the months ahead.