H&M profit beats estimates on tariff refunds and higher margins

H&M, the Swedish fashion retailer, reported stronger-than-expected earnings for the quarter ending in August, exceeding analyst expectations. The company's operating profit soared to 6.04 billion kronor (approximately US$609 million), surpassing the anticipated 5.27 billion kronor. Despite a slight increase in sales, H&M's improved margins and refunds of US tariffs helped offset the modest growth in sales, ultimately resulting in a profitable quarter.

In the fiscal third quarter, H&M's sales reached 57.189 billion kronor, slightly surpassing the forecasted 57.3 billion-kronor. The company anticipates a 1 percent increase in sales for September, the first month of its fiscal fourth quarter, compared to the previous year in local currencies. This early indication suggests how well H&M's fall collections are resonating with customers.

The Swedish retailer has been impacted by the global cost of living crisis, with consumers tightening their spending habits. However, H&M has managed to maintain a leaner stance due to years of cost-cutting measures, such as reduced inventories, fewer markdowns, and a more agile supply chain. These factors have collectively contributed to the company's resurgence in profitability.

Despite the positive quarterly results, H&M's CEO, Daniel Ervér, has faced challenges in consistently driving sales growth. The company continues to lag behind its larger Spanish rival, Inditex, particularly due to Inditex's recent profit disappointment, which was attributed to rising logistics and distribution costs. H&M's gross margins for the quarter were bolstered by one-time effects, estimated at 1.6 percentage points, resulting from tariffs and goods imports that increased the cost of goods sold in previous quarters.