H&M (HMb.ST) shares hit a 16-month high on Thursday after its second-quarter profit beat estimates, with its summer collection doing well as warmer weather arrives in Europe.
Shares in the world's second-biggest fashion retailer jumped 10% to hit their highest level since February 2022. Analysts said the results showed cost-cutting was starting to bear fruit.
H&M, which has lagged Zara owner Inditex (ITX.MC), has sought to raise its fashion appeal and boost its higher-priced brand Cos, targeting shoppers less vulnerable to the rising cost of living as fast-fashion giant Shein takes market share with less expensive clothes.
H&M increased sales in many markets despite a squeeze on consumers' spending ability and "unfavourable" weather," CEO Helena Helmersson said, adding that its summer collection had got off to a good start as temperatures rose across northern Europe.
Sales from June 1-27 were up 10% from a year earlier, H&M said, a good sign for the start of its third quarter.
A sharp drop in inventory levels was another positive surprise, said Cedric Rossi, next-gen consumer analyst at Bryan Garnier in Paris.
"I was really surprised to see that, without any higher promotional activity - because markdowns were in line with last year - H&M decreased its inventory position," Rossi said.
H&M's inventory was at 16.7% of rolling 12-month sales on May 31, down from 19.2% a year earlier.
H&M's operating profit margin in the second quarter was 8.2%, down from 9.2% a year earlier, while the group reiterated its goal of a 10% margin next year, which analysts have said could be hard to reach.
H&M last year announced layoffs and other cost cuts that it said at the time would help it save costs from the second half of 2023 onwards.
"The external factors that affect our purchasing costs continue to improve, work on the cost and efficiency programme is proceeding at full speed, and much of the work that we have done in recent years is starting to bear fruit," the CEO said.
Operating profit in the Swedish group's March-May second quarter was 4.74 billion Swedish crowns ($438.6 million) down from 4.98 billion a year earlier but above the 4.07 billion forecast by analysts in a Refinitiv Eikon poll, Reuters reports.
