H&M reported second-quarter results Thursday that fell short of analyst expectations on both sales and profit, as one-off restructuring costs offset margin gains the Swedish retailer has been building through its ongoing turnaround.
Net sales for the three months ended May 31 totaled 54.83 billion kronor, down 3.3% from 56.71 billion kronor a year earlier. In local currencies, sales were roughly flat. Reported sales came in below analyst expectations of 55.27 billion kronor, according to The Wall Street Journal.
At 5.91 billion kronor, operating profit held flat versus the prior-year period, missing the 6.38 billion kronor consensus estimate tracked by Reuters in an LSEG poll, according to Reuters. Excluding 679 million kronor in one-off restructuring costs tied to organizational changes across H&M's sales markets and central operations, operating profit rose 11% to 6.59 billion kronor, with the adjusted operating margin widening to 12.0% from 10.4% a year earlier.
The gross margin improved to 56.6% from 55.4%, supported by supply chain work and a reduction in markdown costs, the company said.
CEO Daniel Ervér acknowledged in a statement that sales "were somewhat lower than planned," and that the company's tighter inventory management had "in some cases affected our ability to fully meet demand." Stock on hand dropped to 34.94 billion kronor, a decline of roughly 10% compared with the same period last year. Ervér said the company sees potential to improve the balance between stock availability and customer demand.
Behind the restructuring charge were office-worker layoffs and a broader reorganization aimed at eliminating management layers so that individual markets can respond more independently. An additional 565 million kronor in provisions tied to ongoing transition work covering the company's subsidiary brands, digital systems and logistics brought the combined charge for the quarter to 1.24 billion kronor.
Demand was uneven across regions. Sales in local currencies declined 3% across Western Europe, which ranked as H&M's most challenged region, as shoppers in Germany and the U.K. pulled back amid deteriorating consumer sentiment, Ervér told analysts on a post-results call, according to WWD. Southern Europe was more resilient, with sales rising 5% in local currencies. Sales across North and South America dipped 1% in local currencies.
The company's global store count stood at 4,038 at the end of May, compared with 4,166 twelve months prior, reflecting the continued net reduction of its retail footprint. For the full fiscal year, H&M is targeting approximately 90 store openings and roughly 170 closures, a pace that exceeds the 80 openings and 160 closures the company had projected back in March. A debut location in Rio de Janeiro marked the company's entry into Brazil during the period, with additional Latin American markets — including Paraguay and Argentina — targeted for future store openings.
H&M said it expects sales in local currencies in June to be roughly flat compared with the same month a year ago. Cash flow from operating activities rose 24% in the quarter to 10.59 billion kronor.