H&M’s Losing Its Shirt

Articles From: Finimize
Website: Finimize

What’s going on?

Fashion retailer H&M reported falling profits on Thursday.

What does this mean?

When Inditex reported bumper revenue and profit growth earlier this month, H&M probably suffered an attack of the green-eyed monster. See, the Swedish firm has been setting ambitious targets lately – like its plan to double sales by 2030 – and to hit them, it was going to need stellar results like those Inditex posted. Alas, no dice: last quarter H&M, the world’s second-biggest retailer, reported falling sales and a seriously underwhelming pre-tax profit. And that’s not because people have stopped wearing clothes: the likely culprits are H&M’s wind-down of business in Russia – that alone caused half the drop in profits – and the fact the company’s taking higher costs on the chin, raising its prices less than many competitors have.

Why should I care?

For markets: H&M’s going ham.

Unsurprisingly H&M’s stock fell after the news broke, meaning its shares are down 43% this year and underperforming arch rival Inditex by close to 20%. Now, the firm’s going to want to make up that lost ground as soon as possible, which might explain why it plans to cut costs by $180 million a year going forward. And there have been some other good omens: demand improved as the quarter drew to a close, and its fall collection – yes, sweater weather already – has seen sales grow healthily so far this month.

The bigger picture: Things could change.

The fact H&M’s been swallowing increased costs and keeping price hikes lower for customers could pay off in the long term. See, H&M does most of its business in Europe – and data out on Thursday showed economic confidence in the region has fallen to its lowest since 2020 this month. So, with record inflation, currency upheavals, and the prospect of a cold, expensive winter spooking many Europeans, H&M’s cut-price strategy could still turn out to be a success.

Originally Posted September 29, 2022 – H&M’s Losing Its Shirt

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