H&M shares rise 17%, reaches highest point in 16 months.

On Thursday, popular fashion retailer H&M saw its shares reach a 16-month high as its Q2 profits exceeded expectations. The multinational clothing company gained 16.74% to reach its highest level since February 2022. At a time when people are spending more on food to survive the increasing cost of living, the retailer managed to surge as it targets shoppers less vulnerable to the high standard of living. H&M also began to record a significant share increase as it began its cost-cutting measures .

Like many other companies, H&M laid off employees to reduce high costs and amass profit. The company became the first European retailer to dismiss staff in response to the cost of living crisis. It cut 1,500 off its workers to save 2 billion Swedish crowns ($190 million) a year in November 2022.

“The external factors that affect our purchasing costs continue to improve, work on the cost and efficiency program is proceeding at full speed, and much of the work that we have done in recent years is starting to bear fruit,” H&M CEO Helena Helmersson said .

H&M Shares Pop as Sales Spike

The company’s CEO Helena Helmersson said H&M upped sales in multiple markets even as customers reduced their spending behavior. The number of people who splurge on clothing has diminished amid the unstable economy. Also, She mentioned that H&M gathered profits in the second quarter, which caused its shares to soar despite the “unfavorable weather”. The CEO added that the sale of the company’s summer collection also began on a good level as summer kicks in across northern Europe.

Following impressive performance during the second quarter, H&M continued at a good pace. Sales between June 1 and June 27 grew 10% YoY, with the most contribution from the womenswear collection. Cedric Rossi, the next-gen consumer analyst at Bryan Garnier in Paris, also had something to say about the factors pushing H&M shares to a high level:

“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 sharp drop in inventory sales was another surprising cause, as the company’s inventory was at 16.7% of rolling 12-month sales on May 31, down from 19.2% a year earlier. Considering the better-than-expected profit and the inventory margin, investors could digest a weaker margin of 8.2% for the second quarter. Meanwhile, the company recorded 9.2% in the previous year.