Sweden’s H&M Stock Slides 13% As Price Rises Are Confirmed

Shares in Swedish clothing chain Hennes & Mauritz (H&M) tumbled sharply today as the company revealed weaker than expected pre-tax profits, a global 228-store cull, and the decision to increase prices. The stock declined 12.9% to close not far off the lows seen at around the start of the pandemic in March and April 2020.

The fast fashion giant—whose retail brands include H&M, COS and Monki—saw sales rise by 23% year-over-year to $5.24 billion (49.2 billion Swedish Krona) in the three months to the end of February. In the same period in 2021 many stores were closed due to the pandemic. While the company also turned a pre-tax loss of $148 million last year into a pre-tax profit of $30 million, this missed estimates.

CEO Helena Helmersson admitted that disruptions and delays in the supply chain had affected the company and that “major markets were impacted by a new wave of the pandemic in the first quarter.” The reference was to the arrival of the Omicron strain of Covid-19 which led to the closure of stores in some of the group’s best locations.

Nevertheless, sales in physical stores did recover versus the same quarter a year ago and online sales continued to perform nicely. Well-received collections helped, and these supported more full-price selling and a decrease in markdowns.

Only the Asia, Oceania & Africa region saw a sales contraction (down 3%) while H&M’s biggest regions of Western Europe and North & South America—making up roughly half of total sales—powered back up with growth of 37% and 36% respectively.

Store counts in all region except Eastern Europe fell versus the same quarter in 2021, going from 4,949 to 4,721. Among the group’s retail brands, H&M Home concept stores strongly bucked this trend, going from 20 to 28 over the period.

Price rises are coming

With a number of rivals having discussed price hikes in 2022, H&M is also joining in. In an investor call, Helmersson said: “We have seen that competitors have already started to increase prices. We will also need to adjust ours.” CFO Adam Karlsson added: “We will do it in a way that ensures we are competitive in each market and within each product category.”

How that plays out for some of H&M’s price sensitive shoppers will be interesting to see in the coming months as they are also hit by rising inflation, soaring energy bills and higher living costs.

In the current quarter, from the beginning of March, H&M has paused all business in Russia, Belarus and Ukraine due to the war. The move affects a total of 185 stores, as well as online sales in Russia. Net sales across the group from 1-28 March increased by 6% in local currencies compared with the corresponding period last year—a marked slowdown compared to the prior three months. Excluding Russia, Belarus and Ukraine the increase was 11%.

March also witnessed the start of H&M’s push into new markets. The company launched in Cambodia via franchise and has further openings lined up for Ecuador, Kosovo, North Macedonia, Costa Rica and Guatemala in 2022, the latter two via franchise.