H&M Reports Narrower Profit Decline Than Expected

H&M, the world’s second-largest retailer, reported a smaller than expected decline in profit for the first quarter.

According to a report in Reuters, H&M credited the narrower decline in profit to selling more full-priced items. The company was also able to keep margins up, a sign that its turnaround strategy is proving effective.

The results, which H&M reported late last week, sent the stock surging more than 15 percent. The company forecasted that sales of items at discounted prices will continue to decline during the current quarter. Pre-tax profit for the first three months of the year declined for the seventh quarter in a row, with profit coming in at 1.04 billion Swedish crowns ($112 million) compared to 1.26 billion from the year-ago first quarter, but it was better than the 708 million Swedish crowns analysts were expecting.

On the margin front, the fashion retailer said gross margins were 50 percent, higher than 49.9 in last year’s first quarter. Analysts had expected margins to dip to 49.4 percent.

“Our ongoing transformation work has contributed to stronger collections with increased full-price sales, lower markdowns and increased market shares,” CEO Karl-Johan Persson said in a statement. H&M noted when reporting earnings that net sales in March were up 7 percent, surpassing the 4 percent growth it was able to log in the fourth quarter. During a conference call with Wall Street, Persson said that while it’s a shaky market and the company is in turnaround mode, he expects business to improve gradually, noted Reuters.

H&M has recently been investing heavily in integrating its physical stores and online business, as well as improving logistics. The company is also undergoing a review of all its stores, brands and strategies, as retailers scramble to counter the impact of Amazon and other eCommerce marketplaces.