H&M Slumps as Russia, China Hurt Q1 Profits, Slow Start to Q2

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H&M Slumps as Russia, China Hurt Q1 Profits, Slow Start to Q2
Credit: © Reuters.

By Dhirendra Tripathi

Investing.com – H & M (ST: HMb ) stock plunged 10% in Stockholm trading Thursday after the fashion retailer reported earnings that were way off expectations for the first quarter.

At one point, the stock traded at a two-year low. The results were weighed down by multiple headwinds including the Russia-Ukraine war, China lockdowns and investments in technology and the supply chain.

In the quarter through February, while the group swung to a pretax profit of 282 million crowns ($30 million) from a loss of 1.39 billion a year earlier, it was well short of the 1.05 billion crown profit analysts polled by Bloomberg had forecast.

“Sales and profits for the quarter were impacted by the negative effects of the pandemic in many of the group's major markets," H&M said in a statement, citing supply chain disruptions and delays, and a new wave of Covid-19 in some markets.

The retailer has paused sales in Russia, its sixth-biggest market, accounting for about 4% of total revenue. H&M had 227 stores closed as of Wednesday, most of them in Russia, Belarus and Ukraine. Excluding those three countries, revenue rose 11% in March, the news wire said.

The company has also faced the brunt of Covid-related lockdowns in China, one of its biggest markets. China follows a zero-Covid policy and the strict rules there are hurting retailers badly. Some of the retailers have also suffered due to a rising sentiment against foreign labels in the world’s second largest economy.

In the quarter, sales rose 23% year-on-year to 49.16 billion Swedish crowns, but were still down 11% compared to the same period two years ago.

H&M, the world's second-biggest fashion retailer after Zara-owner Inditex (MC: ITX ), said sales during March 1-28, were up just 6% in local currencies.

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