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March 16, 2020

H&M Q1 sales up but more Europe stores to close on virus fears

H&M has reported a rise in first-quarter sales despite a negative impact in the second half from the coronavirus (Covid-19) outbreak, which is taking a toll on the group's sales this month, mainly in Europe where a raft of stores across the region are temporarily closed.

By Beth Wright

H&M has reported a rise in first-quarter sales despite a negative impact in the second half from the coronavirus (Covid-19) outbreak, which is taking a toll on the group’s sales this month, mainly in Europe where a raft of stores across the region are temporarily closed.

In a statement regarding its sales development for the first quarter, H&M said its provisional figures show group net sales increased by 8% to SEK55bn (US$5.6bn) for the period 1 December 2019 to 29 February 2020. The figure compares to SEK51.02bn reported in the prior-year period. In local currencies, net sales increased by 5%.

The retailer added sales development in the second half of the quarter was negatively impacted by the Covid-19 outbreak, particularly in China.

From 1 December 2019 to 23 January 2020, sales in China increased by 27% in local currency. However, H&M noted demand then decreased “significantly” as a result of the rapid development of the virus. As a result, H&M group’s sales in China decreased by 24% in the quarter as a whole. At its peak, 334 of the group’s 518 stores in China were closed in February.

Excluding China, Hong Kong, Singapore, Macau, Japan and Taiwan the H&M group’s sales in the quarter increased by 7% in local currencies.

So far in March, sales have been negatively affected mainly in Europe as a consequence of the continued spread of the virus.

“The situation in every country is changing rapidly,” the retailer said. “Following decisions by the authorities, all of the group’s stores are temporarily closed in Italy since the past few days and during the weekend all stores were also closed temporarily in Poland, Spain, the Czech Republic, Bulgaria, Belgium, France and partly in Greece. All of the group’s stores in Austria, Luxembourg, Bosnia-Herzegovina, Slovenia and Kazakhstan are closing from Monday.”

It added its online store remains open and China sales have gradually started to recover as the situation in the country has improved.

Meanwhile, H&M said while its transformation work continues at full speed, all activities in the company are now being carefully evaluated – including from a cost and risk perspective – so as to be able to mitigate the negative effects associated with the virus as far as possible.

H&M is due to publish its three-month report, covering the 1 December 2019 – 29 February 2020 period, on 3 April. It added the figures provided today (16 March) are provisional and may deviate slightly from the three-month report due next month.

Aneesha Sherman, analyst at Bernstein, notes adding to the already-announced closure in Italy, H&M has announced store closures in 11 additional countries. Including Italy, this impacts almost 1,000 stores and about 18% of group net sales.

“We assume that, like with China, it will take well over a month before those stores start to reopen in a meaningful way. As a rough estimate then, the group will be losing almost half a quarter’s worth of sales in these countries, or just over 2% of group annual sales. This is clearly not the extent of the sales downside – we expect partial closures to be announced across larger markets including the Scandinavian countries (8% sales), UK (7%), Germany (14%) and USA (13%) over the next month.”

Sherman adds the online store remains open in these countries, noting Bernstein expects online sales (16% of total) to be softer though still positive, slightly mitigating the stores impact.

Click here for additional insight on the coronavirus outbreak: Is coronavirus a threat to the clothing industry?

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