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H&M Drops as Surging Costs Nearly Wipe Out Earnings

A close-up shot of the H&M logo on a storefront.
H&M drops as surging costs nearly wipe out earnings. (Shutterstock)

Hennes & Mauritz AB shares fell after the Swedish clothing retailer said burgeoning energy, freight and garment prices nearly wiped out profit in the past quarter.

Operating income dropped 87 percent to 821 billion kronor ($80 million) in the three months through November, H&M said Friday, far off analysts’ estimates. The stock fell as much as 7.9 percent.

The scale of the decline is so big that investors will doubt chief executive officer Helena Helmersson’s forecasts for improvement in sales and profitability, wrote James Grzinic, an analyst at Jefferies. H&M’s exit from Russia and costs related to a plan to cut 1,500 jobs also weighed on earnings. The fast-fashion giant is still struggling with high inventory levels as its profitability lags that of rival Zara-owner Inditex.

H&M buys a greater proportion of its garments from Asia than Inditex, which is more expensive because it requires shipping over longer distances. The retailer said it’s trying to shift more purchasing to nearer countries to reduce costs.

The company said 3.6 billion kronor were lopped off from profit due to higher costs for energy, freight and garments, plus the effect of a strong dollar, the currency in which most clothes are sourced.

Sales returned to growth in December and January, rising 5 percent during the key holiday period following a flat fourth quarter. However, the company warned that discounts are rising slightly in its first quarter, and purchasing conditions are still very negative, with prospects for improvement only later in the year. H&M said it decided not to pass on all the garment price inflation to consumers, which is also weighing of profitability.

The company reiterated a target for a operating margin of more than 10 percent in fiscal 2024. In fiscal 2022, the margin dropped to 3.2 percent, less than half the year-earlier level.

“There are very good prerequisites for 2023 to be a year of increased sales and improved profitability,” CEO Helmersson said in the statement.

The company said it expects to close 100 stores on a net basis this year.

By Rafaela Lindeberg

Learn more:

H&M Reports Jump in Profit as Shoppers Rush Back to Stores

Pretax profit at the Swedish low-cost retailer rose by a third to 4.78 billion kronor ($470 million) in the three months through May, the company said.

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