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.



Fashion Commission Launches 'Traditional Handcrafts Revival in Saudi Fashion' Competition

Fashion Commission Launches 'Traditional Handcrafts Revival in Saudi Fashion' Competition
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Fashion Commission Launches 'Traditional Handcrafts Revival in Saudi Fashion' Competition

Fashion Commission Launches 'Traditional Handcrafts Revival in Saudi Fashion' Competition

Saudi Arabia’s Fashion Commission launched on Tuesday the “Traditional Handcrafts Revival in Saudi Fashion” competition to promote traditional Saudi attire and emphasize Saudi cultural heritage.

The competition, launched in alignment with the Ministry of Culture’s Year of Handicrafts 2025, aims to boost and preserve Saudi cultural identity, while fostering local talent in the realm of creative design.

The competition will equip participants to acquire advanced knowledge about traditional fashion design and Saudi handcrafts, bolstering technical and creative design skills and gaining a deeper understanding of Saudi heritage and architecture.

The winning design will be announced on February 16 and displayed at the Fashion Commission’s exhibition at the Saudi Cup 2025 in celebration of Saudi Founding Day.

Participants will attend a five-day workshop led by expert professionals, with the workshops covering four key areas: traditional fashion design, Saudi heritage and architecture, fashion handcrafts, and creative fashion skills.

Participants are invited to create distinctive fashion pieces that incorporate elements and characteristics reflective of local traditions and design artistry in the Saudi culture.

Following the creative process, participants will submit their creations to be assessed by a specialized panel of experts selected by the Royal Institute of Traditional Arts (Wrth).

The Traditional Handcrafts Revival in Saudi Fashion competition seeks to enhance awareness of traditional handcrafts in the Kingdom, preserve Saudi cultural identity, and develop local talent in the field of creative design by providing training and guidance opportunities to participants throughout the whole duration of the competition.