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An H&M store in Beijing, on March 24, 2021.FLORENCE LO/Reuters

H&M, the world’s second-largest listed fashion retailer, reported a stronger than expected first-quarter operating profit, sending its shares up 13 per cent, as new CEO Daniel Erver said shoppers liked the brand’s spring collections.

The Swedish group has struggled to maintain its position in the fast-fashion sector as bigger rival Zara extended its dominance and China-founded online retailer Shein, which sells $8 dresses, $5 t-shirts and $2 jewellery, grew rapidly.

After such rivals snatched market share over the last year, CEO Daniel Erver, less than two months into his role, said the company must concentrate on its core clientele.

“Where we want to be laser-focused on being a credible fashion brand is for the younger female customer,” he said in an interview with Reuters, adding that women in their 20s and 30s are “tremendously important” for H&M.

Erver took over as CEO after Helena Helmersson quit unexpectedly in January, citing the intense demands of the role she held for four years.

On Wednesday, Erver said the company’s top priority was to boost sales, in a departure, welcomed by the market and analysts, from H&M’s previous emphasis on profitability.

“That’s what has been really lacking, especially last year,” Daniel Schmidt, analyst at Danske Bank in Stockholm, said. “Since coming out of the pandemic sales have been flatlining, which has stood out compared to competitors.”

H&M posted a quarterly operating profit of 2.08 billion crowns ($196-million), up from 725 million a year ago, and above the 1.43 billion expected by analysts in an LSEG poll. Its shares were set for their best day since June.

The 2 per cent first-quarter fall in sales was less than analysts expected, and sales at the start of its second quarter rose by 2 per cent, reflecting stronger demand for its clothing and accessories. H&M’s spring collections, with a colour palette of blue, white, and silver, have been popular with shoppers, Erver said.

Part of that sales boost is also a result of more discounting in the first quarter, with the retailer planning more markdowns this quarter too, to lure new customers and drive more frequent purchases, Erver said.

Known for $19.99 jeans and dresses under $15, H&M has been stretching into more expensive clothing, selling leather trousers for more than $300 and, under its Cos brand, coats for as much as $1,190.

Erver told analysts that recently opened stores in SoHo in New York, and in London’s Chelsea area, cater more for customers with higher spending power, but on average he expects the retailer will have lower prices at the end of 2024 than at the start. H&M aims to reach an operating profit margin of 10 per cent this year – from 3.9 per cent in the first quarter.

Sales from H&M’s other brands, which include & Other Stories, Arket, Cos, Monki, and Weekday, grew by 8 per cent in the first quarter, outperforming the core brand.

To improve the in-store experience, H&M said it is refurbishing around 250 stores this year, a “significant increase” compared to last year. It plans to open around 100 stores, mainly in growth markets, and close 160 stores in more established markets, as it shrinks its store count overall.

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