According to Bloomberg News, Hennes & Mauritz AB shares dropped to a 2-year low following the Swedish owner of the H&M clothing chain declared an abrupt slowdown in revenue growth due to the ongoing Ukrainian war and profits that were overlooked by the analysts’ estimates.
H&M shuts down stores in Russia, Ukraine and Belarus
Sales surged by 6% in March in the local currencies compared to 23% growth in 3 months through February, as stated by H&M on Thursday. The shares dropped by as much as 11% during morning trade, thereby cutting off $2.4 billion from the company’s market value.
The ongoing war coupled with rising cases of Covid in China is adversely impacting the retail market, leading to a short-lived recovery and making efforts of H&M to do away with a six-year buildup of inventory complicated. Helena Helmersson, who is the Chief executive officer who came on board just before the beginning of the pandemic, is facing an uphill task of achieving her goal of making sales just double by 2030. The company is one of the first in the retail sector to report a slowdown due to the Russian invasion, and this only indicates that many will follow suit very soon, as per analysts, says Bloomberg News.
The retailer has paused sales in Russia, and Russia happens to be the company’s sixth biggest market, constituting about 4% of the total revenue. As of Wednesday, H&M brought down shutters of as many as 227 stores, mainly in Russia, Ukraine, and Belarus. Leaving aside these three countries, the revenue rose by 11% in March.
The pretax profit reached 282 million kronor, equivalent to $30 million in the three months through February. This is far short of the analysts’ average estimate of 1.05 billion. H&M also stated that the investments in technology and the supply chain were weighing heavy on the profits.
Bloomberg News reports that H&M is facing tough competition as cut0rate discount SheIn is gaining online worldwide. The owner of Zara, Inditex SA, is expanding at higher profitability levels. As many as 34 stores have been closed by the company in China due to the restrictions related to the pandemic.
Clothes not sold
Inventory of H&M started piling up in 2016, and at the end of February, it exceeded worth $4 billion. Up to 12-month sales, it edged up by 18.9% towards the end of November. H&M stated that about one-sixth of the stock-in-trade was held to mitigate supply chains delays. The retailer’s target is to reduce the inventory to 12% to 14% of the sales. Bloomberg News reports that the company also has a target of net closing stores to 145 shops in the current year, up from what was 120 earlier.
