Despite limited sales growth and a reduction in store counts, H&M ended the year with robust profitability and stringent cost control.
The fourth quarter, concluding on November 30, saw a 2 percent increase in sales. This growth was achieved despite a 4 percent reduction in store operations compared to the same period last year. The retailer’s operating profit escalated 38 percent to US$738.3 million, driving the operating margin up to 10.7 percent from 7.4 percent the previous year. The gross margin also increased to 55.9 percent. H&M attributes this successful quarter to an enhanced product offering and superior inventory productivity, even with selling and administrative expenses on the wane.
H&M CEO Daniel Erver highlighted a strong customer offering, effective cost control, and improved inventory productivity as the main drivers of this quarter’s performance.
Over the year, H&M reported a 2 percent rise in net sales in local currencies. However, reported sales demonstrated a decline, settling at $25.7 billion. Operating profit saw a rise, reaching $2.1 billion and lifting the operating margin to 8.1 percent from the previous year’s 7.4 percent.
Net profit also saw an increase, reaching $1.3 billion, while cash flow from operating activities grew to $3.5 billion. According to Erver, the company saw an improvement in earnings during the second half of the year, attributing it to a focus on enhancing relevance and speed across the product offering.
Erver added, “We continue to make significant strides towards all our long-term goals despite challenging environments.”
Looking forward, H&M predicts a 2 percent decline in sales in the upcoming months in local currencies. This projection is based on a softened demand following strong Black Friday sales and a negative calendar effect due to the timing of the Chinese New Year.
H&M also plans to expand its physical and digital presence in growth markets such as Brazil and other parts of Latin America. This expansion strategy will be complemented by an ongoing optimization of the store portfolio and increased use of artificial intelligence.
What were the key contributors to H&M’s fourth-quarter performance?
The performance was primarily driven by a stronger customer offering, good cost control, and improved inventory productivity.
What factors led to the improvement in H&M’s annual earnings?
H&M’s annual earnings saw an improvement due to a focus on enhancing relevance and speed across the product offering.
What is H&M’s growth strategy for the near future?
H&M plans to expand its physical and digital presence in growth markets such as Brazil and other parts of Latin America, alongside ongoing optimization of the store portfolio and increased use of artificial intelligence.
