H&M on Thursday said that second quarter net sales rose by 11% to SEK 57.5 billion ($6.2 billion, as of the exchange rate at the time of publishing) or 6% in local currencies. Online sales rose 27% in SEK and 20% in local currencies, according to a company press release.
Gross profit rose 9% to SEK 31.8 billion, which corresponds to gross margin of 55.4%, the company said. Adjusted profit fell 1% year over year to SEK 5.9 billion, as selling and administrative expenses rose 12% year over year.
Also on Thursday, H&M and Klarna said they've expanded their partnership to include the U.S. some time in autumn this year. Open to H&M loyalty members, the capabilities involve frictionless mobile, in-store and online payments, easier deliveries and returns, try-before-you-buy services and financing options.
The Swedish fast-fashion retailer closed out its first half of the year on firmer footing, having plowed through the inventory piles that had previously forced debilitating price slashing.
H&M on Thursday said it calculates that in the current quarter, the cost of markdowns in relation to sales will decline by about 1.5 percentage points year over year, making it the fourth straight with a reduction in markdowns. "The H&M group continues to increase full-price sales, reduce markdowns and increase market share, showing that customers appreciate our collections and the improvements we are making to the product assortment and the customer experience," CEO Karl-Johan Persson said in a statement, where he also warned that the investments the company is making "are driving costs in the short term."
The hit to profitability is putting extra pressure on the company's stores and digital operations, according to GlobalData Retail Lead Retail Analyst Kate Ormrod. "Efforts to strengthen its product ranges and availability are clearly resonating with shoppers, helping to drive full price sales and reduce markdowns," she said in comments emailed to Retail Dive. "One sticking point for the first half remains profitability, with operating profit still down on the year."
As it works on catching up in e-commerce, the company has pulled back on its physical store expansion, with many new stores opening in higher growth markets. Net new stores for the year will come in at 130, 45 fewer than previously planned, the company said. That also takes into account plans for 165 store closures across its brands, according to the release. As for the group's digital expansion, during the quarter H&M opened online in Mexico, and this autumn that brand will launch online via franchise in Thailand, Indonesia and Egypt. The retail company is also expanding via partnerships with Indian e-commerce platform Myntra and in Alibaba's Tmall marketplace.
That's the right emphasis, according to Ormrod, though she said there's more to accomplish in digital and omnichannel.
"Having been a laggard for so long, H&M's investment continues apace as the retailer is still yet to fully harness the opportunities that lie within online," she said. "While H&M focuses on rolling out services such as click & collect and instore returns to other markets, it must not neglect other must-have features and fulfilment options that would elevate its online offer in the UK, such as a delivery saver scheme. While it now plans fewer store openings, minimising costs, the new strategy puts pressure on H&M's existing stores and online operations to deliver."
As Persson noted, the company is focused on getting its merchandising right, and last month announced a tie-up with Italian designer Giambattista Valli. That "reinforces H&M's fashion credentials and sets it apart from rivals," Ormrod said, adding that the November release is highly anticipated, as Valli's "first foray into menswear."