PARIS — H&M Group’s Russia exit and skyrocketing costs caused the retailer’s profits to plunge in the three months to Nov. 30.
For the fourth quarter of its most recent full fiscal year, H&M reported a net loss of 864 million Swedish kronor, or $83.9 million, against a net profit of 4.62 billion kronor in the same prior-year period. H&M’s operating profit totaled 821 million kronor in the quarter, versus 6.26 billion kronor, representing an 86.9 percent decrease.
“We started the year having left the worst of the negative effects of the pandemic behind us. Then war broke out in Ukraine, and we quickly decided to pause sales in the countries affected and later on also decided to wind down our business in Russia and Belarus,” said Helena Helmersson, chief executive officer of H&M Group, during a call with financial analysts and journalists on Friday afternoon.
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“Russia was an important and profitable market for us, so our decision to wind down the business there has had a significant negative impact on our results,” she continued. “The hikes in raw materials and freight costs, combined with a historically strong U.S. dollar, led to substantial cost increases for purchases of goods.”
The group, in turn, increased its prices.
“But rather than passing on the full increase to our customers, we chose to strengthen our market position further,” said Helmersson. “On top of this, there were increased energy costs, as well as a one-time charge for the cost and efficiency program that was initiated at the end of the year.”
H&M in September 2022 unveiled a cost-cutting program through which it hopes to reduce its overheads, simplify its organizational structure, facilitate quick decision-making and remove layers.
In late November, the company said it would reduce its workforce by about 1,500 employees.
Such factors’ combined effect amounted to a negative financial impact, totaling around 5 billion kronor, on H&M profits in the fourth quarter versus the same quarter last year.
In the recent fourth quarter, the company registered net sales of 62.43 billion kronor, up 10 percent in kronor and flat in local currencies.
It has been a difficult period for fashion’s mass-market players, as consumers tighten their purse strings in a context of rising inflation.
H&M’s stock closed down 4.1 percent Friday to 125.80 kronor.
For the full year, net profit at the company declined 67.6 percent to 3.57 billion kronor. Operating profit decreased 53 percent to 15.26 billion kronor, while company sales rose 12 percent to 223.55 billion kronor.
Helmersson noted strong sales developments through the holiday period. Between Dec. 1, 2022, and Jan. 25, 2023, marking the beginning of H&M’s new fiscal quarter and year, group sales increased 5 percent in local currencies against the same period in 2022. Excluding Russia, Belarus and Ukraine, company sales were up 9 percent in local currencies. This was primarily driven by H&M womenswear and Cos, which continued to perform strongly.
“We are focusing our expansion on increasing sales across all our channels,” said Helmersson. “We have made large long-term investments with a focus on digital.”
Online sales represented about 30 percent of H&M’s total sales in 2022, which was about on a par with the prior year.
“We see clearly that customers want to shop both online and in-store,” she said. “And we are continuing to grow with omnichannel sales.”
In 2022, H&M opened its first stores in Ecuador, Kosovo and North Macedonia, and — via franchise — in Cambodia, Costa Rica and Guatemala. The group is accelerating its expansion in India, as well as in the North and South America region, with a focus on Latin America.
H&M will start online sales in Ecuador from the beginning of this year, and it is to open its first store in Albania in the first half of 2023. Also this year, the group plans to launch its first flagships for H&M beauty in two European countries.
In 2022 the retailer debuted seven freestanding Home stores and it will roll them out to six additional markets in this year.
“In parallel, we continue to develop all our portfolio brands and business ventures,” said Helmersson. “During the fourth quarter, we saw strong sales development for our portfolio brands, such as Cos and Arket, with an increase of 22 percent.”
H&M continues to invest through its Co:lab venture capital branch.
“In the short term, these investments have created significant value, both financially and in the existing operations,” said Helmersson.
An example is Sellpy, the secondhand fashion platform in which H&M bought a majority stake in 2019. It is growing rapidly, with sales expected to exceed 1 billion kronor this year. And already, the site among Europe’s biggest resale players.
H&M focuses its investments especially in tech, artificial intelligence and the supply chain.
Helmersson said that looking ahead overall, the situation remains challenging but is moving in the right direction.
“The external factors that have had a negative impact on our purchasing costs are gradually reversing, and are expected to become positive for our results in the second half of 2023,” she said. “Purchasing costs are already lower for the orders being placed now, compared with the same time last year.
“In addition, the second half will also see the positive effect of the cost and efficiency program that will drive growth and is expected to provide 2 billion Swedish crowns on an annual basis,” the executive said.
H&M’s long-term goals have not changed, including a double-digit operating margin for full-year 2024. Helmersson said that the company is “further improving the assortment and the customer experience both in store and online. In order to meet our customers’ ever-evolving expectations, we are continuing to strengthen, develop and broaden our offering with more products and services.”
Helmersson added she expects 2023 will be “a year of increased sales, and improved profitability.”