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Author: Alan LittleDate: 2020-09-16

H&M (HMb) Q3 earnings beat bodes well for retail sector

A better-than-expected financial report from fashion retailer H&M (HMb) pushed the retail sector higher in Europe on Tuesday.

The Swedish clothing company posted a before-tax profit of 2bn Swedish kronor ($228m) for fiscal Q3, which beat the analyst consensus of 191m kr but fell short of the 5bn kr reported a year ago.

There had been concerns that the world’s second biggest fashion retailer might struggle to bounce back from a coronavirus-induced slump for the June to August period, but that was not the case.

In a statement, H&M said: “More full-price sales combined with strong cost control enabled the company to already turn to profit in the third quarter.”

H&M still had around 900 stores closed in early June, but a gradual reopening reduced that figure fourfold by the end of August.

Analysts are still cautious that a second wave of COVID-19 infections could hit revenue later this year, but they have welcomed H&M’s quick recovery.

RBC analyst Richard Chamberlain believes that it is a good sign for the rest of the retail sector.

UK retailers John Lewis and Next are both expected to publish reports on Thursday, 24 hours after Zara owner Inditex.

Société Générale analyst Anne Critchlow said that H&M’s strong showing was “very good” news but stood pat on a hold rating.

Analysts at Carnegie noted that increased price markdowns in Q3 actually had a “slight positive effect” after previously warning that it could pressure earnings.

H&M, which is short for Hennes & Mauritz AB, saw its shares soar in Stockholm on Tuesday, rising 11% before midday to rein in the company’s year-to-date stock decline to 16%.

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