Swedish fashion retailer H&M reported on Thursday a smaller-than-expected March-May profit as it was unable to fully meet demand after reducing the amount of clothing it keeps in stock, and predicted unchanged June sales. Operating profit in H&M's fiscal second quarter was unchanged year-on-year at 5.91 billion crowns ($606.5 million), having risen three quarters in a row, against a mean forecast in an LSEG poll of analysts of 6.38 billion. Sales measured in local currencies were roughly flat in the quarter, and H&M predicted flat local-currency sales also in June, year-on-year. Reuters quoted CEO Daniel Erver as saying in a statement that quarterly sales were somewhat lower than planned. "The profitability improvement and increased inventory productivity are in line with our long-term work to lay the foundations for sustainable and profitable growth. The tighter inventory management has, however, in some cases affected our ability to fully meet demand," he said. Excluding a one-off restructuring cost of 679 million crowns, related to organizational changes, operating profit rose 11%. The quarter was closely watched for how H&M weathered the Iran war's impact on consumer confidence and costs. Profit margins held up, with the gross margin widening to 56.6% from 55.4% a year earlier against an expected 56.5%. H&M said it expected markdowns in the third quarter to be on a similar level to a year ago. Erver is trying to attract more shoppers with trendier styles and overhauled marketing. On May 7, H&M launched a collection in collaboration with designer Stella McCartney. While H&M's profit margins have been improving, sales have been more sluggish as cut-price online retailers like Shein compete for price-sensitive customers while Inditex's Zara dominates the upmarket end of fast fashion.
