H&M has outlined a cost-cutting plan as the world’s second-largest retailer responds to pressures such as surging materials prices and a stronger dollar, while its latest quarterly figures revealed a one-time hit from unwinding its Russian business.
The Swedish group set out plans on Thursday to save an annual SKr2bn ($177mn) that it said would come into effect in the second half of next year. Meanwhile, a one-off cost of SKr2.1bn for unwinding its Russian business, following the invasion of Ukraine in February, hit its profits in the three months to August 31.
Increased raw materials and freight prices plus a stronger dollar led to “substantial” cost increases for purchases of goods, the group said.
Shares in H&M fell 4.6 per cent in early trading, bringing the decline for the year to 43 per cent.
Profit, excluding financial items, for the quarter fell to SKr689mn, missing analysts’ expectations of SKr2.98bn, according to a Refinitiv poll, and compared with SKr6.1bn a year earlier.
“The third quarter has largely been impacted by our decision to pause sales and then wind down the business in Russia,” said chief executive Helena Helmersson. “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.”
Global retailers such as H&M were recovering from the pandemic, which closed stores and changed the way consumers spend, when Russia’s invasion of Ukraine took place.
H&M closed 185 stores, out of a worldwide count of 4,700 outlets, and stopped sales in Russia, Belarus and Ukraine after the war broke out. Russia was H&M’s sixth-largest market before the war, representing about 4 per cent of group sales, while Ukraine and Belarus generated 0.2 per cent and 0.1 per cent of total sales respectively.
Sales were weak in many of H&M’s major markets at the start of the quarter in June, but “gradually” improved despite some supply chain delays, the retailer said, adding that sales had also picked up in September.
However, a stronger dollar hit costs for raw materials and other supplies. The dollar index, which sets the US currency against a basket of its peers, has risen more than a tenth this year.
“Overall, these factors had a substantial negative impact on profit for the quarter,” said Helmersson.
Third-quarter net sales rose 3 per cent to SKr57.4bn, compared with SKr55.6bn a year earlier.
