H&M third-quarter profits miss expectations

Swedish fashion retailer H&M was under the cosh on Thursday after it announced an SEK2bn cost-savings programme and posted a decline in third-quarter profits as it took a hit from inflation and its exit from Russia.

Third-quarter pre-tax profit declined to SEK689m from SEK6.09bn in the same period a year earlier, coming in below consensus forecasts of SEK2.98bn. H&M said a one-time cost of SEK2.1bn related to the winding down of its Russian operations had impacted the result for the quarter.

The third-quarter gross margin excluding the one-time cost for Russia was 50.4%, down from 53.2%, while the reported gross margin was 49%, down from 53.2% a year earlier.

Chief executive officer Helena Helmersson said: “The third quarter has largely been impacted by our decision to pause sales and then wind down the business in Russia. This has had a significant effect on our sales and profitability, which explains half of the decrease in profits compared with the third quarter last year.

"Many other external challenges also made their mark on the quarter. In common with the rest of the industry, sales were weak in many of our major markets at the start of the period. Sales then gradually improved, despite of a heatwave in several European countries and some remaining delays in the supply of goods. Increased raw materials and freight prices as well as a stronger US dollar resulted in substantial cost increases for purchases of goods."

The retailer also announced the launch of a cost and efficiency programme as it looks to further streamline the business. It is expected to result in annual savings of around SEK2bn, which will become visible in the second half of next year.

At 0930 BST, the shares were down 3.2% at SEK102.50.

Victoria Scholar, head of investment at Interactive Investor, said: "Sky-high inflation, squeezed household budgets, sliding consumer confidence and one-off costs from exiting Russia have created a perfect storm for H&M’s profitability which fell sharply along with margins.

"The world’s second biggest fashion retailer’s earnings are in stark contrast to its rival Inditex which enjoyed a surge in profits in its forecast-topping first half earnings this month thanks to its strong working capital management. Investors have had a difficult time this year with H&M’s shares lately which are down 45% year-to-date and down 50% over the past five years with shares sharply under pressure again today."