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Online drives H&M profit recovery – but sales still lag pre-Covid era

(Source: Photo by Fernand De Canne on Unsplash.)

H&M grew its online business by 24 per cent last year to the point e-commerce now accounts for about one-third of its total sales.  

In what the Stockholm-headquartered multinational fast-fashion retailer described as a “strong recovery” H&M increased its net profit nearly seven-fold to US$1.5 billion in the year to November 30, on sales up just 6 per cent to $21.13 billion. 

Gross margin rose by 2.8 percentage points to 52.8 per cent as full-price sales increased and e-commerce continued to expand. 

CEO Helena Helmersson said the company was looking forward to a more “normalised situation” as Covid-related lockdowns come to an end in most parts of the world following the two-year-long Covid crisis. 

“By quickly taking decisive action we have succeeded in managing the negative effects of the pandemic,” she said. 

“We ended the year strongly with sales back at the same level as before the pandemic and with profitability better than it has been for several years.”

Announcing the results, Helmersson revealed a plan for H&M to double its group sales by 2030 as well as halving its carbon emissions

“We see significant opportunities to grow both sustainably and profitably.”

This year, H&M plans to open its first stores in six new markets: Cambodia, Kosovo, North Macedonia, Ecuador, Costa Rica, and Guatemala as well as launch online in Belarus, Kazakhstan, Ukraine, Colombia and Peru.

H&M’s positivity was not, however, unanimously endorsed by analysts. Emily Salter, a senior retail analyst at GlobalData, described the full-year performance as “muted” despite the impressive profit gain, noting sales were still down 14.5 per cent on the pre-pandemic 2018-19 year.  

“There are numerous factors that have contributed to the group’s slow recovery, namely its dominance in Europe which has been hit by numerous waves of Covid-19 restrictions and its historically slow digital innovation,” Salter said.

H&M is lagging behind key multichannel rival Inditex, which reported that sales for its third quarter year to date to the end of October were down only 2.5 per cent on a two-year comparative, as its eponymous brand lacks the same reputation for fashionable apparel as Zara, and the group does not have the same appeal among Gen Z shoppers as Inditex has with brands Stradivarius and Bershka.”

Looking forward, Salter said that while sales from December and January were muted by the emergence of the Omicron Covid variant and the resultant restrictions enacted in some of its European markets, the outlook beyond this looks more positive. Numerous countries are relaxing restrictions, boosting demand for its dressier pieces, especially at Cos and & Other Stories.

“The group is also investing in its supply chain to increase flexibility between sales channels and product availability, with an automated logistics centre being built in Canada to support its existing US infrastructure, boosting its capacity for expansion in this market – an important move to reduce its reliance on Europe and ensure further growth.”

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