// H&M braces for loss-making second quarter after recording 46% plunge in sales in March alone
// It follows an 8% increase in sales in Q1 ending February 29
H&M’s growth in the second quarter is expected to be dramatically reversed after a surge in sales in the first quarter, which ended before the coronavirus outbreak escalated globally.
On Friday, the Swedish fashion giant posted an eight per cent increase in sales in the three months ending February 29.
However, H&M Group said sales in March alone – the first month of its second quarter – have nosedived 46 per cent despite online sales enjoying 17 per cent growth.
As a result, the company – which operates the eponymous H&M chain along with Arket, Cos, Monki, & Other Stories and Weekday – warned that the second quarter is expected to be loss-making.
READ MORE:
- H&M to pay suppliers for incoming orders, but new orders paused
- Coronavirus: H&M gives landlords ultimatum over store leases
- H&M Group releases Sustainability Performance report
As with almost all other fashion retailers in Europe, the Covid-19 pandemic has so far forced H&M Group to temporarily shut down 3778 out of 5065 stores worldwide amid government-mandated lockdowns to stem the rapid spread of the highly contagious virus.
The shuttered stores include those in H&M Group’s top three biggest markets: Germany, the US and the UK, where is has around 200 stores.
Its stores in Italy, France and Spain are also shut.
On the flipside, H&M said the decision to keep 47 of its 51 online stores open during the pandemic meant its ecommerce sales were growing in local currencies.
It also pointed to China, where demand has “gradually started to recover. More or less all of the group’s stores have now re-opened and sales have gradually increased”.
For the first quarter, H&M’s gross profit rose 10 per cent year-on-year to 28 billion krona (£2.2 billion), which corresponds to a gross margin of 51 per cent, up from 50 per cent a year earlier.
Profit after financial items more than doubled to 2.5 billion krona (£199 million), “which shows that the company’s transformation work has had a good effect,” H&M said.
The retailer added that its work on product offers meant decreased markdowns and an improved inventory level.
Profit after tax increased to 1.9 billion krona (£151 million) from 1.16 billion krona.
H&M previous reported that its first quarter sales increased eight per cent year-on-year to 54.95 billion krona ($4.3 billion).
In local currencies, first quarter sales were up five per cent but H&M Group said excluding the markets most affected during the period by coronavirus, local currency sales would have risen seven per cent.
Meanwhile, online sales for the first quarter sky rocketed 48 per cent on a reported basis, or 44 per cent in local currencies.
Since the escalation of the pandemic in the current quarter, H&M Group has been seeking ways soften the financial impact by cancelling its dividend, deferring investment and reviewing or slashing expenditure measures.
It has also reduced working hours for many employees, has started negotiations with landlords rent holidays, and increased overall digital activities.
The company also told suppliers it would receive payment for the orders they have already fulfilled or started, but like most other fashion retailers it would pause all new orders.
“The strong improvement in profit in the first quarter shows that customers appreciate our assortment and that our transformation work is having a good effect,” H&M group chief executive Helena Helmersson said.
“The outbreak of coronavirus and the extraordinary public measures taken to reduce the spread of the virus have put people, communities and companies in an exceptional situation.
“However, I am convinced that as a company – once we are through this – we will continue to stand strong.”
Click here to sign up to Retail Gazette’s free daily email newsletter
