Fashion Retailer H&M’s Profit Tumbles As Costs Bite

Sweden’s H&M reported on Friday a much larger than expected drop in September-November profit, hit by weak consumer confidence and soaring costs that it did not fully pass on to price tags, sending its shares down 7% in early trade. Operating profit in the period, the world’s second-biggest fashion retailer’s fiscal fourth quarter, was 821 million crowns ($79.7 million) against 6.26 billion a year earlier and a mean forecast of 3.67 billion in a Refinitiv poll of analysts. H&M, which had already reported that sales in the quarter were flat, said on Friday that sales from Dec. 1-Jan. 25 – the start of its fiscal first quarter – were up 5% in local currencies. “The lower profit in the fourth quarter when compared with the same quarter in the previous year is mainly explained by the negative external factors, loss of the operating profit previously contributed by Russia and the one-time cost of the cost and efficiency programme,” it said in a statement. The hit from quitting Russia, higher raw material, freight and energy costs, currency translation effects and the restructuring charge totalled around 5 billion crowns, Chief Executive Helena Helmersson said. “Rather than passing on the full cost to our customers, we chose to strengthen our market position further,” she said. H&M in September launched a drive to cut costs by 2 billion crowns annually, with savings from layoffs and other measures expected to start showing from the second half of 2023. The group flagged in November it would cut around 1,500 jobs and book a roughly 800 million crown restructuring charge in the fourth quarter for the programme.

It Announced Last Year it Was Exiting Russia Due To The Country’s Invasion of Ukraine.

“Gross margins were weaker than expected,” analysts at Credit Suisse said in a note to clients. “The company has clearly decided not to pass on the full increase in input costs,” they said, adding that sales so far in the current quarter were strong – as expected given colder December weather across Europe. H&M has struggled to keep up with biggest rival Inditex (BME:ITX), the owner of Zara. Inditex in December posted a jump in profit for the nine months through October but said sales growth slowed in the final three months of that period due to the weakening consumer environment. Britain’s Superdry on Friday cut its profit forecast for this year as its wholesale business underperformed. H&M proposed a dividend for 2022 of 6.50 crowns per share, unchanged from the year before, roughly matching expectations.

($1 = 10.2969 Swedish crowns)