By Dominic Chopping


STOCKHOLM--Swedish fashion retailer Hennes & Mauritz posted forecast-beating earnings as well-received spring collections pushed sales higher during February.

H&M is working through a cost and efficiency program to save 2 billion Swedish kronor ($188.8 million) a year as it works toward lowering prices for customers and achieving an operating margin of 10% this year.

It said Wednesday that benefits of the program combined with the normalizing of factors that influence purchasing costs as well as good cost control is boosting margins and allowing it to enhance its product offering and provide more value for money.

Investors cheered the news, sending shares up to 14% higher in early trade in Stockholm.

"Our top priority is to strengthen sales, and our target of a 10% operating margin for full-year 2024 thus remains in place," said Chief Executive Daniel Erver.

H&M reported an operating margin of 3.9% in the fiscal first quarter that runs to Feb. 29.

Analysts have for some time questioned the attainability of reaching its margin target this year as the company has struggled to gain sales traction amid lower consumer buying-power, rising costs and fierce competition from low-cost, fast-fashion online rivals such as Shein and Primark as well as its larger, more traditional rival, Zara.

"While H&M reiterated their ambition for 10% EBIT margin for full year 2024, we remain unconvinced unless they bring up price materially and take a significant hit on volume, which we don't think is sustainable," Bernstein analyst William Woods said in a note.

The Red Sea is also raising question marks, as ships are being forced to add thousands of miles to their journeys to avoid the area, slowing the delivery of goods and adding to transport costs. Unlike Zara, which has a local sourcing business model, H&M counts Asia as a major sourcing region so the Red Sea situation could be damaging to its supply chain.

In his first earnings report since taking the helm earlier this year, Erver said the company is monitoring developments in the Red Sea and acting to minimize the impact on product availability, freight costs and stock levels.

He also said the company is accelerating the upgrade of stores, refurbishing around 250 stores globally in 2024, and bringing more sourcing closer to its main markets.

The company said sales in the period between March 1 and March 25 increased by 2% in local currencies compared with the same period the previous year.

Net profit was SEK1.21 billion for the quarter to Feb. 29 compared with SEK541 million a year earlier as sales fell 2.2% to SEK53.67 billion.

Analysts polled by FactSet had expected net profit of SEK753 million on sales of SEK53.25 billion.

Bernstein's Woods said the company's overall first-quarter results beat expectations across the board, with sales declining less than expected, the 51.5% gross margin much higher than forecast and current performance trending above expectations.


Write to Dominic Chopping at dominic.chopping@wsj.com


(END) Dow Jones Newswires

03-27-24 0601ET