H&M Group puts integrating the H&M brand online and in-store among its top priorities for a year in which it is targeting double digit growth as it recovers from the effect on the war in Ukraine on its business. The fashion retailer says closing its business in Russia and Belarus has hit its profits hard, and it reported a fourth quarter loss. It now expects a strong return to profitability in the year ahead.
“Our highest priority is the H&M brand, where we are continuing to work on improving the assortment and the customer experience both in store and online while at the same time integrating the two channels further,” says H&M chief executive Helena Helmersson. “Development of all our brands continues in parallel, alongside initiatives in areas such as sport, beauty and home.”
H&M today reports sales of SEK 223.5bn (£17.5bn) in the year to November 30 2022. That’s 12% up on the previous year – or 6% in local currencies. When the Russia, Belarus and Ukraine markets were excluded, sales were 15% ahead in Swedish krona, and 8% in local currencies.
Operating profits more than halved to SEK 7.2bn (£562.2m) after the SEK 2.6bn (£203.2m) cost of winding down its Russian operations. It reported a post-tax profit of SEK 3,566m SEK 3.6bn (£279.6m) for the year.
In the fourth quarter alone, net sales came in at SEK 62.4bn (£4.9bn). That’s 10% up on a year earlier, and 11% when operations in Russia, Ukraine and Belarus were included. H&M initially suspended trade in the markets following the Russian invasion of Ukraine. It reopened its Russia and Belarus shops in August for closing down sales, closing them as stock sold out. The last stores closed in both markets by the end of November.
Operating profits of SEK 821m (£64.4m) were down from SEK 6.3bn (£490.8m) a year earlier, after the cost of winding down Russian operations and a 20% rise in costs, including high energy prices and rising delivery costs. At the bottom line it reported a post-tax loss of SEK 864m (£67.7m) down from SEK 4.6bn (£362.4m) a year earlier.
Between December 1 and January 25 2023, H&M group sales grew by 5% in local currencies.
“Although 2022 was a turbulent year characterised by negative external factors such as geopolitical challenges and substantial cost inflation, our sales increased by 6% during the year,” says Helmersson. “Having left the worst of the negative effects of the pandemic behind us, war broke out in Ukraine. We quickly decided to pause sales in the countries affected and later to wind down our business in Russia and Belarus. Our decision to wind down the business in Russia, which was an important and profitable market, has had a significant negative impact on our results.” Added to this, says Helmersson, the rising prices of raw materials, energy and freight, along with a strong US dollar have meant a rise in costs that it has not fully passed on to customers – resulting in a fourth quarter post-tax loss of about SEK5bn.
However, Helmersson says its costs are now falling while an efficiency programme is expected to save it SEK2bn a year. In the year ahead the retailer is now targeting a double-digit operating profit margin, and is boosting capital expenditure by 50% as it invests in areas from the supply chain to technology and AI.
“Via our investment arm CO:LAB we are creating value through a range of exciting and innovative partnerships and business models,” she says. “Sellpy is growing fast and is already one of the biggest players in second-hand fashion in Europe. To enable all this our investments in the supply chain, tech and AI are also continuing. In total we are increasing capex from SEK 7 billion to SEK 10 billion in 2023.”
H&M is ranked Top50 in RXUK Top500 research.