H&M stock jumps 20% on boost to profit and a ‘good start’ to Q3

H&M Group (STO: HM-B) jumped about 20% on Thursday after reporting a boost to profit in its second financial quarter.

Why else is H&M stock up today?

The retail stock is being rewarded also because executives revealed a 10% year-on-year increase in sales between June 1^st and June 27^th in local currencies. According to Helena Helmersson – the Chief Executive of H&M:

The summer collections have been well received and the third quarter has got off to a good start. Conditions for increased growth and profitability continue to develop in a favourable direction.

The Swedish fashion retailer expects a slight increase in its cost of markdowns in relation to sales in the third quarter.

At writing, H&M stock is up roughly 60% versus the start of 2023.

H&M Q2 earnings snapshot

H&M reported a 6.0% annualised growth in sales to SEK 57.62 billion ($5.31 billion). Other notable figures in the earnings press release include SEK 3.3 billion of net profit versus SEK 2.89 billion expected.

Operating margin declined 100 basis points to 8.2% on higher raw material and freight costs. On the plus side, though, inventory was at 16.7% versus 19.2% a year ago. Reacting to it, Bryan Garnier analyst Cedric Rossi said:

I was really surprised to see that, without any higher promotional activity – because markdowns were in line with last year – H&M decreased its inventory position.

The multinational clothing company is still aiming for SEK 2.0 billion in yearly cost savings and operating margin at 10% in 2024 as its efficiency programme continues to progress at high intensity. H&M stock currently pays a dividend yield of 3.49%.