H&M’s fast-fashion parade is skating on thin ice
MILAN, Jan 27 (Reuters Breakingviews) - H&M’s (HMb.ST) outfit is once again failing to impress. Operating profit at the world’s second-biggest fashion retailer shrunk to 821 million Swedish crowns ($79.7 million) in the fiscal quarter ending Nov. 30, against 6.26 billion crowns a year earlier and nearly 80% below a mean analyst forecast of 3.67 billion crowns compiled by Refinitiv. That corresponds to a meagre operating margin of 1.3%, a far cry from the around 15% margin larger rival Inditex (ITX.MC) is expected to report in its fourth quarter. It’s little wonder the near $18 billion group’s shares fell 7% after the earnings release.
A one-off charge for winding down the Russian operations did not help. Yet investors have bigger reasons to worry. H&M’s operating margins were already lingering in the mid-single-digit area before inflation became a problem. The Swedish group’s inability to pass on higher raw materials and transport costs to consumers signals a lack of pricing power vis-à-vis competitors. Meanwhile, cheaper outfits like Associated British Foods’ (ABF.L) Primark are biting at H&M’s heels. Sales growth of just 5% in December and January suggests the Swedish retailer is struggling to recover to its pre-crisis levels. If a recession curbs even more consumer spending, H&M’s profit margin may disappear. (By Lisa Jucca)
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