Hennes & Mauritz AB turned in a stronger profit mainly thanks to refunds of US tariffs, which cushioned results even as sales barely grew. Operating earnings reached 6.04 billion kronor, or $609 million, beating the 5.27 billion-kronor average estimate. Revenue for the fiscal third quarter rose 1% measured in local currencies. Management said gross margin benefited by about 1.6 percentage points from one-time effects tied to tariffs and goods imports that had previously pushed up the cost of goods sold.
"The improvement is clear," CEO Daniel Ervér told analysts, adding, "The operating margin is now at 9% versus 7.2% for the same time last year." He also acknowledged in an interview that "going forward, more will need to come from sales growth," saying the company has built a strong base to support "strong profitability growth." For September - the first month of H&M's fiscal fourth quarter - the retailer expects sales to be up 1% year over year in local currencies, offering an early read on demand for fall collections.
H&M said freight was already more expensive in the third quarter and warned that external factors are set to push up purchasing costs in the fourth. It also expects slightly higher markdowns as retailers spread promotions over a longer window ahead of Black Friday. With fewer cost cuts left to squeeze and goods getting pricier, further profit gains hinge more on faster revenue growth, Jefferies analyst James Grzinic wrote.
Shares slid as much as 3.7% in Stockholm after management outlined these headwinds. Even before the update, the stock was down more than 10% this year.
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Shoppers living through a cost of living squeeze have been spending more cautiously, crimping fashion retailers' margins amid tougher competition and geopolitical uncertainty. H&M has trimmed fat in recent years, with leaner inventory, fewer markdowns, and a quicker supply chain helping rebuild profitability. Still, consistent sales momentum has been hard to nail down, leaving H&M behind Inditex, the Spanish parent of Zara.
Inditex recently missed on profit as logistics and distribution costs rose, though it said sales, excluding currency effects, increased by 9% from Aug. 1 through Sept. 7. Analysts have also noted that tariff repayments can inflate reported profit without signaling a lasting improvement, so investors will be watching whether H&M can convert its cost work into steadier top-line growth. For your money, that split between one-offs and durable demand is what matters.
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