H&M Q3 Profit Beats Estimates as Margins Improve

H&M reported stronger-than-expected third-quarter operating profit on Thursday, supported by tighter cost controls, improved purchasing and greater operational efficiency at the Swedish fashion retailer.

Operating profit for the June-to-August quarter climbed to 6.04 billion Swedish crowns ($608.63 million), up from 4.91 billion crowns in the same period last year. The result comfortably exceeded the 5.14 billion crowns average forecast in an LSEG poll of analysts.

H&M’s gross margin also improved, rising to 54.0% from 52.9% a year earlier and beating analysts’ expectations of 53.4%. The increase was particularly notable because the previous year's margin had received support from one-time tariff-related benefits.

Quarterly sales increased 1% in local currencies, slightly outperforming expectations for weaker growth. CEO Daniel Erver said improvements in purchasing, cost management and operational efficiency contributed to the stronger results.

"Although sales developed in a positive direction during the quarter, we see further potential to increase sales going forward," Erver said.

The company said external factors had a slightly negative impact on purchasing costs during the quarter, largely because of higher freight expenses. Markdown costs were unchanged from the previous year, while currency movements related to intragroup payables and receivables had a neutral impact on gross margin. A year earlier, favorable exchange-rate movements had provided additional support.

Looking ahead, H&M expects September sales to increase 1% in local currencies, suggesting modest growth at the start of its fourth quarter.

However, the retailer warned that external factors are expected to have a somewhat negative overall impact in the fourth quarter compared with the same period last year. H&M also expects markdown costs as a percentage of sales to rise slightly.

The anticipated increase in markdowns reflects a longer and broader pre-Black Friday promotional campaign this year, while Cyber Monday will also fall in November. Despite these pressures, H&M’s latest earnings highlight progress in improving profitability through cost discipline and more efficient purchasing.