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H&M Profits Hit by Surging Costs and Wary Shoppers

H&M Profits Hit by Surging Costs and Wary Shoppers

Thursday, 29 September, 2022 - 07:30
A man leaves H&M shop in Riga, Latvia January 30, 2020. REUTERS/Ints Kalnins/File Photo

H&M, the world's No.2 fashion retailer, launched a 2 billion Swedish crown ($177 million) cost savings drive on Thursday after reporting weaker-than-expected profits due to soaring input costs, slowing consumer spending and its exit from Russia.

Pretax profit in the June-August period, the Swedish group's fiscal third quarter, fell to 689 million crowns ($60.9 million) from 6.09 billion a year-earlier. Five analysts polled by Refinitiv had on average forecast a 2.98 billion crown profit.

The company did not give details of where it hoped to make cost savings, but said the benefits should be felt in the second half of 2023.

Its shares fell around 7% in early trading, Reuters reported.

H&M said a 2.1 billion crown one off-cost for winding down its business in Russia, announced in July, accounted for only about half of the profit drop.

It had earlier this month posted lower-than-expected sales for the period as shoppers reined in spending in the face of soaring energy and other living costs, but said demand had improved late in the quarter.

It said on Thursday a heatwave in many European markets and delays in the supply chain also weighed on sales.

Meanwhile, increased raw materials and freight prices, and a stronger US dollar, resulted in substantial cost increases for purchases of goods.

"Overall, these factors had a substantial negative impact on profit for the quarter," CEO Helena Helmersson said. "We have chosen not to fully compensate for the increased costs, which is reflected in the gross margin."

In Europe, where H&M does the bulk of its business, the conflict in Ukraine, record energy prices and high inflation are weighing on consumer confidence, and households are cutting back on spending as they brace for tougher times.

Market leader Inditex, the owner of Zara, which has been weathering recent headwinds better than H&M, grew sales in its May-July quarter. The Spanish group's growth, however, slowed in the Aug.1-Sept. 11 period.

H&M said on Thursday its autumn collections had been well received, with sales up 7% year-on-year in local currencies from Sept. 1–27 - the start of its fiscal fourth quarter.

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