What’s Going On Here?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 (tweet this). 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. | 