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H&M flags higher prices after profit falls far short of expectations

H&M flags higher prices after profit falls far short of expectations
H&M flags higher prices after profit falls far short of expectations   -   Copyright  Thomson Reuters 2022
By Reuters

By Anna Ringstrom

STOCKHOLM -Sweden’s H&M said on Thursday it would need to raise prices this year as it reported a December-February profit sharply below expectations amid high raw material and transportation costs.

The world’s second-biggest fashion retailer swung to a pretax profit of 282 million crowns ($30.5 million) in its first quarter from a 1.4 billion loss a year earlier when nearly half of its stores were closed by the pandemic.

As well as missing the average analyst forecast for a 1.0 billion crown profit, the result was also far below the 2.5 billion crowns reached in the pre-pandemic first quarter of 2020, sending H&M’s shares down 10% by 1130 GMT.

“Sales and profits for the quarter were impacted by the negative effects of the pandemic in many of the group’s major markets,” H&M said in a statement, citing supply chain disruptions and delays, and a new wave of COVID-19 in some markets.

Increased technology and supply chain related investments also weighed.

“Looking at inflation it’s primarily raw material and transportation costs that affect us and we see, as do many others, that we need to adjust our prices,” CEO Helena Helmersson told Reuters. “We’ll raise different product types in different countries depending on competition and demand.”

The plan was for price hikes to be smaller than rivals’, and not affect basic clothing ranges, she said in an interview.

First-quarter sales were up 18% year-on-year in local currencies, H&M reported earlier, but still down from two years ago.

Sales growth in the March 1-28 period slowed substantially from the first quarter, to 6% in local currencies.

Excluding Russia, Belarus and Ukraine, where H&M has temporarily closed stores, the March increase was 11%. Russia last year accounted for 4% of group sales.

“There is a continued uncertainty concerning developments and the company is monitoring and evaluating the situation continuously,” H&M said on the Ukraine crisis.

H&M said its collections had been well received in the first quarter, leading to a higher share of full-price sales than a year earlier, as well as in March. Helmersson said that in countries where spring had arrived, colourful clothes in particular were in demand.

Biggest rival Inditex, the owner of Zara, has weathered pandemic and global supply chain disruptions better than H&M. It grew sales 33% year-on-year, and 21% from the same period in 2019, in the six weeks from Feb. 1.

($1 = 9.2620 Swedish crowns)