Companies

H&M profits tumble after Russia exit and soaring costs

H&M blamed high clothes prices, its exit from Russia and a cost-cutting programme for an unexpectedly large collapse in its earnings as the world’s second-largest fashion retailer’s struggles with profitability continue.

Operating profit plunged 87 per cent to SKr820mn ($80mn) in the fourth quarter to the end of November from a year earlier. Analysts expected an average of SKr3.7bn.

Shares in H&M fell 7 per cent to SKr121.94 in Friday morning trade, having lost nearly half of their value since their recent peak in April 2021.

Chief executive Helena Helmersson told the Financial Times it had been “a very turbulent quarter”.

She added: “The hikes in raw materials and freight costs combined with a historically strong US dollar resulted in extensive cost increases for purchases of goods.”

The Swedish retailer, which lags behind Inditex, the Spanish owner of Zara, in both sales and profitability, launched a SKr2bn cost-cutting programme last year that included 1,500 job losses.

H&M’s sales in the fourth quarter were up 10 per cent to SKr64.4bn, but were flat in local currency terms. It said sales from December 1 until January 25 had increased by 5 per cent in local currencies.

“Sales in the new financial year have started well,” said Helmersson, adding that she hoped sales, profitability, and inventory levels would all improve this year. “The external factors are still challenging, but are moving in the right direction,”

She reiterated H&M’s goal for next year of a double-digit operating profit margin from 3.2 per cent in 2022. Its operating margin was more than 20 per cent in 2010 but has been about half of Inditex’s for the past four years.

Its results in the fourth quarter were weighed down by an SKr836mn cost for its restructuring programme.

The Swedish retailer has struggled to match Inditex’s manufacturing flexibility and has often ended up with large amounts of garments it has had to discount.

Helmersson said H&M was increasing its production in Europe and looking at Latin American countries as part of an attempt to do more “near-shoring” and be able to respond more quickly to fashion trends.

The retailer said it expected to have lower inventory in 2023 but avoided giving precise financial guidance for this year. It added that capital expenditure would increase 50 per cent to SKr10bn.

The company’s board is planning a SKr3bn share buyback for this year but will “wait to see how the company develops during the year and the authorisation will only be used if certain conditions are met”.

Separately, shares in UK retailer Superdry fell more than 17 per cent in early morning trading after it warned on profits.

The company cautioned that cost-conscious consumers spending less on clothes could lead to a “soft spring” for the fashion chain.

It also blamed its performance on its struggling wholesale arm, which had been hit by ongoing shipping constraints, as it posted a pre-tax loss of £17.7mn in the 26 weeks to October 29.

“Whilst we did trade well through November and December, the outlook for the remainder of the year is uncertain and as a result, we are moderating our profit outlook to broadly break even,” said co-founder and chief executive Julian Dunkerton.

Superdry had previously forecast full-year profits of up to £20mn.

Group revenue was up 3.6 per cent to £287.2mn as people flocked back to high streets and December trading returned to pre-pandemic levels, the company added.

Read the full article here

Get Best News and Web Services here

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to top button