H&M stock slides as tepid growth outlook offsets Q3 profit beat

H&M reported a significant increase in operating profit for the third quarter, reaching 6.04 billion crowns ($608.63 million) compared to 4.91 billion crowns a year earlier. This beat analyst expectations, which had averaged 5.14 billion crowns. The company's cost-control measures and improved purchasing helped push margins higher, with gross margin rising to 54.0% from 52.9%.

Despite this profit boost, H&M's shares fell over 3%, as investors were disappointed by the company's guidance for September sales growth, which is expected to only increase by 1% in local currencies. This comes despite a 1% rise in sales during the quarter. CEO Daniel Erver attributed the profit improvement to gains in purchasing, cost control, and operational efficiency.

However, H&M noted that external factors, such as higher freight costs and markdown costs, weighed slightly on purchasing expenses during the quarter. Additionally, currency movements on intragroup payables and receivables had a neutral impact on gross margin. For the fourth quarter, H&M expects external factors to have a somewhat negative impact, with markdown costs as a percentage of sales expected to increase slightly due to a longer and more extensive pre-Black Friday campaign period, including Cyber Monday in November.