H&M reported reduction in profits due to high costs
2023.01.27 09:06
H&M reported reduction in profits due to high costs
By Ray Johnson
Budrigannews.com – LVMH and Salvatore Ferragamo revealed that China’s COVID-19 policies had a negative impact on luxury sales, and H&M was the latest fast-fashion retailer to report that rising costs had reduced its profits.
shares in H&M, the No. 2 fashion retailer’s quarterly operating profit fell to 821 million Swedish crowns ($79.7 million) from 6.26 billion a year earlier, causing early trade losses of up to 6%. In a poll of analysts conducted by Refinitiv, that was significantly lower than the mean forecast of 3.67 billion crowns.
The findings brought to light the difficulty that fashion retailers face when they have to pay more for shipping, energy, and textiles at the same time that rising costs for food, energy, and rent make customers more selective in their purchases.
In a statement, CEO Helena Helmersson said:
“We chose to strengthen our market position further rather than passing on the full cost to our customers.”
Last year, H&M started a campaign to cut costs by 2 billion crowns per year. The savings from layoffs and other measures should start to show up in the second half of 2023.
However, it has struggled to keep up with Inditex, a larger rival (BME:), whose flagship brand Zara sped up price increases last year without alienating customers.
Zara has performed better than its competitors because it sells clothes at a higher price and attracts customers who might not have spent money at luxury stores.
Due to poor performance in its wholesale business, Superdry, a British company, reduced its profit forecast for this year on Friday.
Primark, a clothing retailer, warned earlier this week that economic headwinds could reduce consumer spending this year.
Organic sales at the largest luxury group in the world increased by 9%, down from 20% in the first nine months of the year, at the other end of the market.
This was because of the impact that lockdowns had on China and its subsequent abandonment of a zero-COVID policy, which has led to an increase in the number of infections in the world’s second-largest economy.
Although LVMH stated that the situation had significantly improved since the beginning of the year, Beijing authorities relaxed travel restrictions in December, causing issues in warehouses, stores, and distribution networks.
Jean-Jacques Guiony, the head of finance at LVMH, stated:
“Everyone was sick, it’s as simple as that.”
LVMH, the most valuable listed company in Europe, owns dozens of high-end brands like Dior and Louis Vuitton.
A record-breaking run in LVMH shares came to an abrupt halt on Friday due to dissatisfaction with the impact that the disruptions in China were having on the company’s margins.
Despite this, it is anticipated that the luxury industry will benefit greatly from the relaxation of restrictions that prevented customers from shopping in Chinese stores for months.
As the Italian luxury goods company reported a 5.7% increase in sales last year at constant exchange rates, Salvatore Ferragamo also attributed a slowdown in the fourth quarter to COVID restrictions in China.
In contrast, Remy Cointreau, a French manufacturer of spirits, reported sales for the third quarter that were lower than anticipated. This was due to increased shipments to China in advance of the Lunar New Year, which partially offset lower cognac consumption in the United States.
That was in line with remarks made by Diageo (LON:), the largest spirit manufacturer in the world. who indicated on Thursday that strong demand for its drinks may be slowing in some parts of the world, particularly North America, as people made cocktails at home during COVID-19 lockdowns.
