# H&M to cut costs as profits hit by inflation, cautious shoppers
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2022-09-29
Category: NEWS
Category URL: https://financedigest.com/category/news
Meta Title: H&M Launches £177m Cost Savings Drive Amid Profit
Meta Description: H&M, the world's No.2 fashion retailer, aims to save 2 billion Swedish crowns to counter profit drop due to soaring costs and tough market conditions.
URL: https://financedigest.com/hm-to-cut-costs-as-profits-hit-by-inflation-cautious-shoppershtml

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By Anna Ringstrom

STOCKHOLM (Reuters) – H&M, the world’s No.2 fashion retailer, launched a 2 billion Swedish crown ($177 million) cost savings drive on Thursday after reporting weaker-than-expected profits due to soaring input costs, slowing consumer spending and its exit from Russia.

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

Pretax profit in the June-August period, the Swedish group’s fiscal [third quarter](https://www.financedigest.com/greek-residential-property-price-recovery-picks-up-in-third-quarter.html "Greek residential property price recovery picks up in third quarter"), fell to 689 million crowns ($60.9 million) from 6.09 billion a year-earlier. Five analysts polled by Refinitiv had on average [forecast a 2.98 billion crown profit](https://www.financedigest.com/mercedes-benz-lifts-profit-forecast-as-luxury-cars-boom.html "Mercedes-Benz lifts profit forecast as luxury cars boom").

The company did not give details of where it hoped to make [cost savings](https://www.financedigest.com/how-omnichannel-identity-servers-help-enterprises-enhance-customer-experience-unlock-cost-savings-and-accelerate-time-to-market.html "How omnichannel identity servers help enterprises enhance customer experience, unlock cost savings and accelerate time to market"), but said the benefits should be felt in the second half of 2023.

Its [shares were down 3% in mid-morning trading](https://www.financedigest.com/social-trading-is-the-new-way-that-gen-z-are-getting-their-share-of-the-pie.html "Social Trading is The New Way That Gen Z Are Getting Their Share of The Pie"), taking a year-to-date drop to 43%.

H&M said a 2.1 [billion crown one-off cost](https://www.financedigest.com/australias-nuclear-submarine-plan-to-cost-up-to-245-billion-by-2055-defence-official.html "Australia’s nuclear submarine plan to cost up to 5 billion by 2055 -defence official") for winding down its business in Russia, announced in July, accounted for only about half of the profit drop.

Earlier this month, the group reported lower-than-expected sales for the period as shoppers reined in spending in the face of soaring energy and other [living costs](https://www.financedigest.com/indefensible-uks-sunak-under-fire-over-response-to-cost-of-living-crisis.html "‘Indefensible’: UK’s Sunak under fire over response to cost of living crisis"), but said demand had improved late in the quarter.

The [retailer said on Thursday a heatwave in many European markets in the summer and delays in the supply chain also weighed on sales](https://www.financedigest.com/valentines-day-spending-boosts-british-retail-sales-in-february-brc.html "Valentine’s Day spending boosts British retail sales in February – BRC").

Meanwhile, [increased raw materials and freight prices](https://www.financedigest.com/syngenta-4q-profit-falls-as-raw-material-prices-increase.html "Syngenta 4Q profit falls as raw material prices increase"), and a stronger U.S. dollar, resulted in substantial cost [increases for purchases](https://www.financedigest.com/how-to-increase-repeat-purchase-rates-in-ecommerce.html "How to increase repeat purchase rates in eCommerce") of goods.

Overall, these factors had a substantial negative [impact on profit for the quarter,” CEO](https://www.financedigest.com/stanchart-ceo-says-at1-bond-wipeout-has-profound-impact.html "StanChart CEO says AT1 bond wipeout has profound impact") Helena Helmersson said. We have chosen not to fully compensate for the [increased costs](https://www.financedigest.com/global-medical-costs-expected-to-increase-in-2017-despite-lower-rates-of-inflation.html "Global Medical Costs Expected to Increase in 2017 Despite Lower Rates of Inflation"), which is reflected in the gross margin.

Graphic: H&M vs rivals- https://fingfx.thomsonreuters.com/gfx/mkt/lbvgnqonepq/Hennes.PNG

SEPTEMBER DEMAND PICKUP

We note significant margin headwinds to come, particularly given the stronger USD relative to EUR, as well as higher energy costs and a loss of high margin [Russian business,”](https://www.financedigest.com/pizza-firm-dp-eurasia-delivers-profit-rise-evaluating-russian-business.html "Pizza firm DP Eurasia delivers profit rise, evaluating Russian business") Royal Bank of Canada analyst Richard Chamberlain said in a note to clients.

Market leader Inditex, the owner of Zara, which has been weathering the tough market conditions better than H&M, increased [sales in its May-July quarter](https://www.financedigest.com/food-group-danone-raises-2022-outlook-as-third-quarter-sales-beat-expectations.html "Food group Danone raises 2022 outlook as third-quarter sales beat expectations"). The Spanish [group’s growth](https://www.financedigest.com/uk-needs-to-make-politically-unpopular-reforms-to-boost-growth-business-group-says.html "UK needs to make politically unpopular reforms to boost growth, business group says"), however, slowed in the Aug.1-Sept. 11 period.

H&M said its autumn collections had been well received, with [sales up 7% year-on-year in local currencies from Sept](https://www.financedigest.com/russian-retail-sales-fall-deeper-jobless-rate-rises-in-sept-data.html "Russian retail sales fall deeper, jobless rate rises in Sept – data"). 1–27 – the start of its fiscal [fourth quarter](https://www.financedigest.com/german-gdp-contracted-by-0-4-in-the-fourth-quarter.html "German GDP contracted by 0.4% in the fourth quarter"), against a 4% drop in the third quarter.

Helmersson told analysts markets that had been weak in the quarter, such as [central Europe](https://www.financedigest.com/analysis-runaway-prices-have-central-europe-on-the-ropes.html "Analysis-Runaway prices have central Europe on the ropes"), had picked up in September.

Analysts at [Credit Suisse](https://www.financedigest.com/mitsubishi-ufj-to-postpone-at1-bond-issuance-in-credit-suisse-fallout.html "Mitsubishi UFJ to postpone AT1 bond issuance in Credit Suisse fallout") said: “Despite modest expectations, profitability in 3Q was significantly worse than expected and the outlook for margins over the next year continues to deteriorate,” they said, adding that they expect demand to soften in the rest of the year from the first half as inflationary pressures squeeze shoppers.

($1 = 11.3104 [Swedish crowns)](https://www.financedigest.com/dollar-edges-down-from-six-week-peak-swedish-crown-jumps.html "Dollar edges down from six-week peak, Swedish crown jumps")

(Reporting by Marie Mannes in Gdansk, Anna Ringstrom in Stockholm; Editing by Terje Solsvik, Mark Potter and Jane Merriman)


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