Russia exit hammers H&M’ s profit

H&M, the world’s number-two fashion retailer, launched a 2billion Swedish crown ($177m) cost-savings drive on Thursday after reporting weaker-thanexpected profit due to soaring input costs, slowing consumer spending and its exit from Russia.

Pretax profit in the June-August period, the Swedish group’s third quarter, fell to 689million crowns ($60.9m) from 6.09-billion a year-earlier.

Five analysts polled by Refinitiv had on average forecast a 2.98-billion crown profit.

The company did not give details of where it hoped to make cost savings, but said the benefits should be felt in the second half of 2023. H&M’s share price fell about 7% in early trading. The group said that a 2.1 billion crown one-off cost for winding down its business in Russia, announced in July, accounted for only about half of the profit drop.

Earlier this month it posted lower-than-expected sales for the period as shoppers reined in spending in the face of soaring energy and other living costs, but said demand had improved late in the quarter.

The group said on Thursday a heat wave in many European markets and delays in the supply chain also weighed on sales.

Meanwhile, increased raw materials and freight prices, and a stronger US dollar, resulted in substantial cost increases for purchases of goods.

“Overall, these factors had a substantial negative impact on profit for the quarter,” said CEO Helena Helmersson. “We have chosen not to fully compensate for the increased costs, which is reflected in the gross margin.”

In Europe, where H&M does most of its business, the conflict in Ukraine, record energy prices and high inflation are weighing on consumer confidence, and households are cutting back on spending as they brace for tougher times.

Market leader Inditex, the owner of Zara, which has been weathering recent headwinds better than H&M, grew sales in its May-July quarter.

The Spanish group’s growth, however, slowed in the period of August 1-September 11.

H&M said on Thursday that its autumn collections had been well received.

Its sales were up 7% year on year in local currencies from September 1 to 27, the start of its fourth quarter.