PARIS — Offering a glimpse of the rough road shaping up ahead for the apparel industry, Hennes & Mauritz AB said it expects to post a loss in the second quarter and has already seen a 46 percent decline in March sales, taking the hit from store closures across Europe and the U.S.
One of the sector’s heavyweights — expected to weather the crisis better than most — the Swedish fast-fashion retailer has been moving quickly to reduce costs by adjusting orders, revisiting rents, opening fewer stores, temporarily laying off tens of thousands of workers and postponing investments to adjust to the abrupt closure of the majority of its vast store network—3,788 stores out of 5,065 have been shut since March 31.
“We have never been through times as demanding as these,” said chief executive officer Helena Helmersson, speaking on a conference call with analysts. Helmersson also outlined the company’s plans to forego a dividend this year and reduce salaries for senior executives by 20 percent for three months.
The second-quarter outlook “looks brutal,” and there will also likely be “follow-on effects” in the third quarter, noted Richard Chamberlain of RBC Europe.
H&M, which has undergone a broad overhaul, investing in technology, revisiting store formats and focusing on full-priced sales, warned it may need to implement markdowns in the third quarter.
Such measures would be temporary, executives said, noting inventory levels were down 12 percent in the first quarter, a sign that turnaround efforts are paying off.
Efforts to rein in operating costs, which H&M plan to reduce by 20 to 25 percent in the second quarter, will not be enough to offset the loss in sales over the period, the group said.
Sourcing costs could come down executives suggested, citing a dramatic drop in demand. Emphasizing a flexible cost structure, executives stressed they could reduce marketing, rental and staffing costs during store closures.
Describing how the situation evolved in China, the group’s financial release included bar charts that showing that sales declines gradually diminished week by week in the 10 weeks following the lowest level, when they sunk below 89 percent at the height of the crisis there, when 64 percent of stores were closed. The final week shows a 23 percent sales decline while 1 percent of stores were still closed.
The retailer carefully considered commercial plans, adjusting them to offer “appropriate deals for our customers to attract them,” explained Helmersson.
“We’re really happy to see that the opening in China, welcoming the customers back with those commercial activities, is slowly but surely showing good recovery,” she added.
The shape of the recovery in China has differed online and in stores, executives said, noting they expect the crisis to accelerate a shift to online sales overall, while both channels feed each other.
“We do believe the digital shift will probably happen a bit quicker than before because some customers that have not been shopping online before are starting to do that now,” said Helmersson.
Stressing the importance of the ongoing dialogue between companies and governments, H&M executives said they appreciate support measures easing the cost burden on companies in certain markets, more should be done.
“In our view…further measures will be needed,” said Helmersson.
“We simply believe it’s a crisis for all of us and we have to help each other,” she added, referring to talks with governments and industry associations.
H&M was on a “strong recovery path,” prior to the downturn, noted Chamberlain, citing brisk online sales over the first quarter, up 48 percent, lifted by a new platform in Germany.
The resilience of H&M’s online sales is a “key positive,” noted analysts at Berenberg.
Profit for the first quarter, from Dec. 1 to Feb. 29, was 28.03 billion Swedish kronor, or $2.77 billion, as the company’s turnaround efforts improved the margin a notch, to 51 percent.