STOCKHOLM — H&M, the world’s second-largest fashion retailer, launched a 2 billion Swedish crown ($177 million) cost-cutting campaign on Thursday after reporting lower-than-expected profits.
In Europe, where H&M has most of its business, the Ukraine conflict, record energy prices and high inflation have weighed on consumer confidence and pushed households to cut back on spending.
The Swedish group’s pre-tax profit in the third quarter fell to 689 million crowns ($60.9 million) from 6.09 billion in the same period last year, down from the 2.98 billion expected by five analysts surveyed by Refinitiv. It fell well below 10,000.
CEO Helena Helmersson told Reuters that much of the savings program will come from simplifying the organizational structure and purchasing fewer tech services. She said the program also aims to reduce business travel and lower office rents.
H&M says the benefits should be felt in the second half of 2023.
The company’s share price is down 3% at 1135 GMT, down 43% year-to-date.
H&M said one-off charges of 2.1 billion crowns announced in July to wind down operations in Russia accounted for about half of the decline in profits.
Earlier this month, the group reported lower-than-expected sales as shoppers curbed spending, but said demand improved later in the quarter.
Retailers said on Thursday that a summer heat wave and supply chain delays in many European markets also weighed on sales.
On the other hand, costs increased significantly due to higher raw material and transportation costs and the strong dollar.
“Overall, these factors had a significant negative impact on earnings,” said CEO Helena Helmersson. “We have chosen not to fully compensate for the increased costs reflected in our gross margin.”
She told Reuters that H&M has raised prices in some segments, such as high-fashion women’s clothing, but to varying degrees depending on the market, and pricing is a key tool in navigating high costs. He said it would continue.
“Pricing flexibility will be important going forward,” she said in an interview.
Demand pickup in September
In a note to clients, Royal Bank of Canada analyst Richard Chamberlain said: “Profit margins are likely to have a significant “We know there will be headwinds,” he said.
Market leader Inditex, owner of Zara, which has weathered tougher market conditions than H&M, posted higher sales in the May-July quarter. However, the Spanish group’s growth slowed from August 1 to he September. 11th term.
H&M said its fall collection was well received, with sales up 7% year-on-year in local currencies from September 1 to 27, the start of the fourth quarter, compared with a 4% increase in the third quarter. Decreased. Better weather also contributed, he said, Helmersson.
She told analysts that markets such as Central Europe were weak in the June-August quarter but rebounded in September.
A Credit Suisse analyst said:
UK peer Next lowered its sales and earnings forecasts on Thursday, signaling increased pressure on household budgets in the coming months.
($1 = 11.3104 Swedish crowns)
Anna Ringstrom and Marie Mannes