H&M’s Q3 profitability impacted

Swedish retailer H&M Group’s Q3 2022 profitability is impacted due to the decision to “pause sales” in Russia among other external challenges.

The Group’s operating profit excluding the one-time cost for Russia was SEK3,006 million or $275 million (versus SEK6,272 million or $573 million a year earlier). The reported operating profit was SEK902 million or $83 million, corresponding to an operating margin of 1.6% (versus 11.3% a year earlier).

Commenting on the third quarter results, H&M Group CEO Helena Helmersson said, “The third quarter has largely been impacted by our decision to pause sales and then wind down the business in Russia. 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. Many other external challenges also made their mark on the quarter. In common with the rest of the industry, sales were weak in many of our major markets at the start of the period. Sales then gradually improved, despite of a heatwave in several European countries and some remaining delays in the supply of goods. Increased raw materials and freight prices as well as a stronger US dollar resulted in substantial cost increases for purchases of goods. We have chosen not to fully compensate for the increased costs, which is reflected in the gross margin. Overall, these factors had a substantial negative impact on profit for the quarter.”

“Long-term initiatives to meet customers’ ever-increasing expectations are continuing. This involves ensuring the best customer offering for all the brands and the best customer experience. In a situation of high inflation where household living costs are rising significantly it is more important than ever to offer customers the best value for money.”

“Sales channels are being increasingly integrated, alongside continued digitalisation of the supply chain. Efficiency, speed and flexibility have never been more important. In parallel, a programme to reduce costs and further improve efficiency is being initiated. From the second half of 2023 onwards this is expected to result in annual savings of around SEK 2 billion.”

Moreover, H&M Group has signed agreements with developers of new solar farms to secure access to renewable energy for many years to come. This will help the H&M Group reach its carbon reduction targets as well as securing energy prices for parts of its own operations.