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March 31, 2022

Omicron pushes H&M Group away from recovery in Q1

Swedish fashion retailer H&M Group has moved to a profit for the first quarter but says both sales and profits in the period were impacted by the negative effects of the pandemic.

By Beth Wright

H&M Group has published its results for the first quarter (Q1), from 1 December to 28 February:

  • Net sales in local currencies increased by 18% in Q1. Converted into SEK net sales increased by 23% to SEK49.17bn (US$5.13bn). This compares to SEK40,06bn in the prior-year period.
  • Well-received collections led to a higher share of full-price sales and lower costs for markdowns. At the same time, sales and profits for the quarter were impacted by the negative effects of the pandemic in many of the group’s major markets. The result was also affected by increased growth-related initiatives, particularly within tech and the supply chain.
  • Q1 profit after tax increased to SEK0.22bn from a loss of SEK1.07bn a year earlier.
  • Gross margin expanded to 49.3% from 47.6% last year.
  • Net sales in the period 1-28 March increased 6% in local currencies compared with the corresponding period last year. Excluding Russia, Belarus and Ukraine the increase was 11%.

“Having ended last year with sales back at the same level as before the pandemic and in a strong financial position, we started the new year with increased initiatives to create an even better foundation for long-term growth. The initiatives mainly involve continuing to develop the customer experience by, for example, further broadening the assortment and integrating the sales channels, and by continuing to invest in infrastructure such as tech and the supply chain, but also in renewable energy and sustainable materials,” says H&M Group CEO Helena Helmersson.

“In addition to the general consequences of the pandemic such as disruptions and delays in the supply chain, some of our major markets were impacted by a new wave of the pandemic in the first quarter. Despite this, we saw a recovery of sales in physical stores compared with last year, while online sales continued to perform well. This shows the value of having both physical and digital channels which strengthen and complement each other. Well-received collections led to full-price sales continuing to increase which led to more than expected decrease of markdowns.

“Other than effects associated with the paused sales in Russia, Belarus and Ukraine, the group’s other plans remain in place. Our flexibility is good, which enables us to act quickly as circumstances change in the world around us. We have a well-positioned customer offering and are fully focused on meeting customers’ ever-increasing expectations of affordable and sustainable fashion.”

Commenting on the numbers Emily Salter, senior analyst at GlobalData, notes H&M has reported significant year-on-year growth in its Q1 FY2021/22, with sales increasing by SEK9.1bn to SEK49.2bn, however, she says this is due to weak comparatives from the second wave of lockdowns in Europe.

“Sales remained 10.5% lower than FY2019/20 as the retailer struggles to stand out in a crowded market for young shoppers, and with online sales “just below last year” despite these store closures. The spread of Omicron and related restrictions throughout its dominant market of Europe also dampened sales as some stores were once again forced to temporarily close and the cancellation of social events and Christmas parties led to a surge in returns. H&M now faces the impacts of the Russia-Ukraine conflict, pausing sales in both countries and Belarus which make up a combined 4.3% of its total sales. The group’s total sales during 1-28 March increased by a muted 6% in local currencies, with a growth of 11% excluding these countries, so its revenue will continue to be subdued.

“H&M continues to expand into new territories with a focus on a multichannel approach, including opening stores via franchise and launching on new online marketplaces—for instance, Monki will launch on rapidly-growing About You in FY2021/22, increasing its presence across mainland Europe. In FY2021/22 H&M plans to open around 95 new stores, but will also close 240 locations, with the reduction in its colossal store estate in Europe necessary to future-proof its eponymous brand. The retailer must revamp its tired, older stores and continue to roll out more innovative instore initiatives such as clothing rental, with shoppers able to rent occasionwear in selected H&M stores in the Netherlands, Sweden and Germany; as well as continuing to develop its phygital offer through its app to make the shopping journey easier and more seamless.

“The group’s focus needs to be re-establishing H&M as a fashion destination with a pull to rival Zara, with Inditex reporting that its Q4 FY2021/22 (ending 31 January) total revenue was only 0.9% lower than pre-pandemic levels, and with constant currency sales from 1 February to 13 March surging 21% above the comparable period in FY2019/20. This can be aided by its designer collaborations, with its

“Iris Apfel x H&M collection launching today, but it needs to boost consumer awareness of these collections and extend these fashion credentials to the brand as a whole to make its products more exciting to shoppers. The retailer should also continue to innovate to keep up with trends to attract digitally native Gen Z shoppers, such as through its foray into digital fashion with its virtual collection in collaboration with DressX where consumers could win one of three of H&M’s first virtual looks.

H&M Group recently gained Gold certification from Cradle to Cradle Certified for its latest newborn collection, each piece of which is 100% biodegradable, ensuring the whole line can be composted at end of life.

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