H&M profits almost wiped out as soaring costs hit fashion retailer

Fri, 27 Jan, 2023 - 15:39

H&M said that soaring costs had slashed its profits, the latest fast-fashion retailer to feel the pinch as consumers cut back.

Shares in H&M, the world's No 2 fashion retailer, closed 4% lower as quarterly operating profit sank to 821m Swedish crowns (€73.2m), well below analysts' forecasts.

The results highlighted the challenge for fashion retailers facing higher bills for textiles, energy, and shipping at the same time as rising costs for food, energy, and rents force consumers to be more picky about what they buy.

"Rather than passing on the full cost to our customers, we chose to strengthen our market position further," chief executive Helena Helmersson said in a statement.

H&M last year launched a drive to cut costs by 2bn crowns annually, with savings from layoffs and other measures expected to start showing from the second half of 2023.

But it has struggled to keep up with bigger rival Inditex, whose flagship brand Zara aggressively raised prices last year without turning off shoppers.

Zara has outperformed rivals after selling higher-priced garments and enticing shoppers who might have otherwise spent money at luxury stores.

Britain's Superdry cut its profit forecast for this year as its wholesale business underperformed. Its shares tumbled almost 20%.

Earlier this week, clothing retailer Penney-Primark cautioned economic headwinds may dent consumer spending this year.

Expectations dimming

The results capped the first week of the fourth-quarter corporate earnings season, with expectations dimming further even as data has raised hopes for a soft economic landing in 2023.

Data shows analysts have downgraded their earnings forecasts for European companies at their fastest pace this week since July 2020.

At the other end of the fast-fashion market, sales at the world's biggest luxury group LVMH grew 9%, a slowdown from 20% in the first nine months of the year.

That was due to the hit in China from lockdowns and its subsequent exit from a zero-Covid policy.

Meanwhile, Bestway, the owner of Costcutter, has built a 3.4% stake in Sainsbury's, describing the move as an investment and not a step towards making a takeover offer for Britain's second-largest supermarket group.