H&M

PARIS — Feeling the full brunt of disruption from the coronavirus, H&M Group’s sales plummeted 57 percent in local currencies from March 1 to May 6, when the vast majority of stores were ordered shut across Europe and the U.S. 

The Swedish fast-fashion retailer, which owns labels Cos, Monki, & Other Stories along with H&M, offered a trading update Thursday, following the gradual reopening of some markets from the end of April.

Business has been muted in recently opened markets, where social distancing rules are being followed, the company said. Online sales, meanwhile, have increased in the March-to-May 6 period by 32 percent.

Sales in Germany fell 46 percent over the period, while the drops were much steeper, more than 70 percent, in the U.S., Spain, France and Italy. In China, the decline was 32 percent.

There are currently 3,050 H&M group stores temporarily closed, around 60 percent of the group’s sprawling network, marking a gradual easing after 80 percent were closed in mid-March.

The group is guiding for lower costs for markdowns in the second quarter than in the second quarter of last year but with likely lower sales, the markdowns are expected to have a negative effect on the gross margin of between 2 and 4 percentage points. 

Stock-in-trade stood at slightly over 41 billion Swedish Kronor, or $4.18 billion at the end of April, compared to 40 billion Swedish kronor last year, H&M said.

Operating expenses excluding depreciation and amortization will be reduced by between 20 and 25 percent in the second quarter, H&M said.

Analysts from RBC Europe said they were surprised by the figure, but that they appreciated the complexity of the situation and the likelihood there will be additional costs as a result of COVID-19. Noting that the company had made good progress on managing its inventory over the year and a half that preceded the current crisis, RBC analysts said to expect more challenging times ahead given a likely “glut” across the industry with the likelihood more higher-priced chains will sell clothing at H&M’s price points. 

They added that H&M has been gradually improving its offer, which is leading to an improved underlying performance, when excluding the effect of COVID-19. 

“However, short-term trading conditions are very challenging,  we think a recovery may be more gradual than the market expects and some of its relative improvement seen in 2019 may start to fade,” added RBC.

The group has said it expects the second quarter to be loss-making as efforts to rein back costs related to purchasing, investments, staffing and rents will not be enough to compensate for the steep sales declines. 

The company said it has unused credit facilities totaling 23.8 billion Swedish kronor, or $2.42 billion, but that it is working on securing more.

“The group’s work is focused on ensuring financial flexibility and freedom of action on the best possible terms in a challenging market where business opportunities are also arising,” said the H&M Group.