H&M Profit Target in Spotlight as Cost-cutting Gathers Pace

H&M is under pressure to prove to investors it can turn its fortunes around. Reuters file photo
H&M is under pressure to prove to investors it can turn its fortunes around. Reuters file photo
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H&M Profit Target in Spotlight as Cost-cutting Gathers Pace

H&M is under pressure to prove to investors it can turn its fortunes around. Reuters file photo
H&M is under pressure to prove to investors it can turn its fortunes around. Reuters file photo

Swedish fashion retailer H&M is under pressure to prove to investors it can turn its fortunes around and fend off fierce competition from fast-fashion rivals such as Zara, whose sales are rising, and China-founded Shein, set to go public this year.
H&M, which sold more than $22 billion in clothing and accessories in its 2023 financial year, aims to reach an operating margin of 10% by the end of 2024.
Faced with falling sales, the retailer with around 4,300 global stores is intensifying cost-cutting, prioritizing profitability over revenues.
When it reports full-year results on Wednesday investors want to be able to see its pathway to that margin goal, against a backdrop of shaky consumer demand.
H&M's operating margin improved to 5.9% at the end of the third quarter, from 3.9% a year earlier, but the challenge this year will be to keep increasing margins at a time when many clothing retailers have signaled price cuts.
Known for dresses under $15 and $19.99 jeans, H&M could tweak its pricing strategy this year to reach its margin goal, said Andreas Lundberg, analyst at SEB in Stockholm. Its "price mix will be more important," he said.
"Although the last 10-15 years have been volume-driven for H&M, volumes are also very expensive to handle internally, in warehouses, in stores," Lundberg said. "In the future you may see fewer volumes."
Budget fashion retailer Primark also sees its adjusted operating profit margin recovering to more than 10% this year as sourcing costs fall, enabling it to absorb the higher shipping rates driven by disruptions in the Red Sea.
Bernstein analysts see H&M and Primark among the most impacted apparel retailers given their higher reliance on Asian sourcing and high use of sea freight.
Given that risk, another key figure investors will watch is H&M's stock-in-trade: the amount of inventory the retailer is carrying.
"H&M has managed to decrease this number significantly and the trend continues downwards, meaning they are shortening time from design to production to shipping," said Adil Shah, portfolio manager at Storebrand in Oslo, which holds H&M shares.
H&M's stock-in-trade as a percentage of rolling 12-month sales was 17.1% at the end of the third quarter, down from 21.6% a year earlier.
H&M, whose other brands include Arket, Cos, Monki, Weekday, and & Other Stories, has been closing stores and laying off staff. On Friday, it announced a plan to shut more than a fifth of its stores in Spain and lay off as many as 588 workers.
H&M had 701 fewer stores by end-August last year compared with the end of 2019, a decline of 13.8%.
Its cost-cutting has helped improve investor sentiment. H&M shares are up around 29% from a year ago, but with a price-to-earnings ratio of 18, still trade at a discount to Zara-owner Inditex, whose ratio is roughly 20.8.
Reluctant to fire the starting gun on price cuts, mass-market fashion retailers may "wait to see who will move first", said Alex Romanenko, head of retail at pricing consultancy Pearson Ham Group. Bank of America analysts see apparel prices in Europe falling by 2% in 2024, having risen by 4.5% last year.



Bold Looks Among Boulders at Michael Kors’ New York Fashion Week Show 

A model walks the runway during the Michael Kors Spring/Summer 2025 fashion show during New York Fashion Week in New York on September 10, 2024. (AFP)
A model walks the runway during the Michael Kors Spring/Summer 2025 fashion show during New York Fashion Week in New York on September 10, 2024. (AFP)
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Bold Looks Among Boulders at Michael Kors’ New York Fashion Week Show 

A model walks the runway during the Michael Kors Spring/Summer 2025 fashion show during New York Fashion Week in New York on September 10, 2024. (AFP)
A model walks the runway during the Michael Kors Spring/Summer 2025 fashion show during New York Fashion Week in New York on September 10, 2024. (AFP)

Fashion sometimes involves risk and designer Michael Kors would tell you some risks aren’t worth taking. Last year, his September show was held outside and the weather did not cooperate, so he decided his spring/summer 2025 collection at New York Fashion Week would bring nature inside instead.

Kors and his team created a unique runway in a cavernous raw space in a midtown building, with stark metal benches lining the rectangular walls and gigantic faux black rocks scattered in the center and sides, similar to the rocky beaches of the Amalfi Coast. The drama of Italian cliffs in an urban setting was part of Kors’ abstract inspiration.

Kors says he’s “glued” to pop culture and was especially fascinated by the recent Netflix series “Ripley,” based on Patricia Highsmith’s classic novel, “The Talented Mr. Ripley.” The dark story is set in coastal Italy where a man who covets a friend’s wealthy life kills him and takes over his identity, killing anyone else who threatens his new persona.

“Seeing this romantic, moody, dark story shot all in black and white, I thought it brought something very different to the romance of it,” Kors told The Associated Press backstage before the show. “There was this sort of dark side of romance that’s not sweet, not insipid, and mysterious. And then also, this is my 35th anniversary of working with Italian artisans and I really wanted to play up all of the incredible tailors and craftspeople in Italy.”

The result was a show that used stark lighting and a haunting instrumental score to set the mood for a lot of black and white and muted colors with looks that evoke Ripley’s 1950’s hybrid style of city and resortwear.

“There’s lots of texture, black raffia, white embroideries. Everything is very tactile,” Kors explained. “It’s all the colors that you would find in the Mediterranean. So all of the natural colors have very soft browns and creams. And then of course, there’s going to be blue.”

The brand’s craftsmanship was on display with intricate peekaboo lace dresses and skirts and several dresses, skirts and coats adorned with flower applique’. Accessories stood out in the collection with leather handbags, hats and shoes teeming with black raffia that looked like leather straw. Nearly every look had a belt — some styled loosely but extra-long and knotted to dangle, and others wide and tight at the waist. The ever-present trench coat appeared for men and women on the runway, mostly oversized and slouchy.

This season’s shows brought guests and media to all corners of the city and surroundings, showing off its beauty and designers’ creativity — from a horse ranch in the tony Hamptons for Ralph Lauren, to a giant ferry boat docked on the East River for Tommy Hilfiger, to an old Domino sugar factory in Brooklyn for Tory Burch.

The show’s front row was packed with celebrities, including Kerry Washington, Mary J. Blige, Shailene Woodley, Mindy Kaling, and Lindsay Lohan.

“I’m always really inspired by the simplicity, the craftsmanship. He has a real kind of a love for women that is so kind of understated, but just so consistent,” Olivia Wilde said. “I always feel so beautiful in his clothes.”

Suki Waterhouse was wearing a pink lace Kors dress and matching fluffy coat. “The straw shoes with the matching bag was my absolute favorite,” the actor and recording artist said after the show. “I need to book a holiday to be able to wear those things.”