[caption id="attachment_97596" align="aligncenter" width="700"] Source: Company reports/Coresight Research[/caption]   3Q19 and 9M19 Results H&M reported 3Q19 revenues that were marginally higher than the consensus estimate, while EPS was 2.2% higher than expectations. The highlights are as follows: 3Q19

• H&M grew net sales 12.1% year over year to SEK 62.57 billion, above the consensus estimate of SEK 62.44 billion. In local currencies, net sales increased by 8% year over year, accelerating from a 6% increase in 2Q19. Online sales in 3Q19 increased by 30% year over year in SEK and 25% in local currencies.
• Gross margin of 50.8% was up 50 bps year over year, ahead of the consensus estimate of 50.5% recorded by StreetAccount. The company said that gross margin was impacted by negative purchasing costs caused by a more expensive US dollar compared with the same purchasing period the previous year. Management added that gross margin was also affected by continued investment in providing a strong customer offering and by the costs of ongoing transformation work.
• Operating margin expanded 90 bps to 8.0%, slightly above the consensus of 7.8%.
• Cost for markdowns in relation to sales decreased around 2 percentage points year over year.
• Profit after financial items was up 25% year over year to SEK 5,011 million, driven mainly by increased full-price sales and lower costs for markdowns.
• Net sales in Sweden stood at SEK 2,387 million, up 6% year over year. By region, in local currencies, Chile grew revenues by 32%, India 29%, Poland 20%, the US 19%, Italy 15%, Russia 12%, China 8%, France 8%, Germany 5%, and the UK 1%. Management added that the market situation was negative in some of its franchise markets due to challenging macro factors.
• The company successfully launched the H&M brand on India’s leading ecommerce platform, Myntra, in August.

  9M19

• H&M’s net sales increased 11% year over year on a constant-currency basis to SEK 171,061 million. In local currencies, net sales increased by 6% year over year. The company attributed the growth to ongoing transformation work that resulted in positive sales development with more full-price sales, lower markdowns and increased market share.
• Profit after financial items was up 6% to SEK 11,988 million. The company’s profit after tax increased to SEK 9,231, up 1.34% year over year. Profit after tax in the first nine months of FY18 was positively impacted by a one-off tax income of SEK 418 million as a result of the US tax reform (Tax Cuts and Jobs Act).
• The company reported EPS of SEK 5.58, up 1.5% year over year.
• Selling and administrative expenses increased by 12% in SEK and by 8% in local currencies compared with the corresponding period the previous year.

Ongoing and New Initiatives Management said that, to create the best offering and experience for customers, the company continues to upgrade hm.com and its mobile app with simple navigation, integrated search functions, improved product visuals as well as more payment and delivery options. Examples of the company’s new and ongoing initiatives include the introduction of a “pay later” purchase option for members of H&M’s customer loyalty program; digital receipts; visual search; same-day, as well as next-day, delivery service; find-in-store service; click and collect; in-store mode; scan-and-buy service; online returns in store; incorporation of radio-frequency identification technology; H&M Beauty Bar by Dashl; collaboration with social media sites such as Instagram; and Monki live shopping. CEO Karl-Johan Persson commented: Well-received summer collections and increased market share show that we are on the right track with our transformation work to meet customers’ ever-increasing expectations. Continued increases in full-price sales and decreases in markdowns contributed to a 26%increase in operating profit in the third quarter, all while maintaining a high level of activity in our transformation work. Outlook H&M outlined the following plans and guidance for FY19:

• H&M plans to launch online in Egypt via franchise. The company also plans to launch its discounted fashion and lifestyle products brand, Afound, online in the Netherlands.
• The company will introduce its brands in new markets including COS in Slovakia, Weekday in Switzerland and & Other Stories in Latvia.
• H&M plans to open a total of 290 stores (including franchises) in FY19, majority of which will open in 4Q19. The company also plans to close 170 stores as part of its consolidation plan to optimize its store portfolio.

In 4Q19, the consensus estimate recorded by StreetAccount calls for H&M to report revenues of SEK 60.88 billion and EPS of SEK 2.34. For FY19, analysts have penciled in revenues of SEK 231.17 billion, up 10.1% year over year and EPS of SEK 7.79, up 1.9% year over year.