H&M Group must boost fashion credentials to offset Covid impact - Just Style (2024)

Fashion retailer H&M Group has published its first half-year results for the six months to 31 May, with one analyst noting the group is yet to recover from the impacts of Covid.

• Net sales in local currencies increased by 15% in H1.
• Converted to SEK, net sales rose by 20% in the first half-year to SEK103.67bn (US$10.2bn) from SEK86.57bn a year earlier.
• Well-received collections led to a higher share of full-price sales and lower costs for markdowns.
• Gross profit increased to SEK54.11bn from SEK44.11bn a year earlier, corresponding to a gross margin of 52.2%, compared to 50.9% last time.
• Profit after tax increased to SEK3.9bn from SEK1.7bn last year.

Second-quarter to 31 May:

• Net sales in local currencies increased by 12% compared with the corresponding period last year.Excluding Russia, Belarus, and Ukraine sales increased by 17% in local currencies.
• Converted to SEK, net sales rose by 17% to SEK54.5bn.
• Gross profit increased to SEK29.85bn, up from SEK25.05bn and corresponding to a gross margin of 54.8%.
• The group’s profit after tax increased to SEK3.68bn from SEK2.77bn.

Elsewhere, the board of directors has decided to buy back its own B shares for SEK3bn starting from today (29 June).

Sales in the month of June are expected to decrease by 6% in local currencies compared with June 2021. The paused sales in Russia, Belarus, and Ukraine represent 5percentage points of the decrease. H&M Group says the June figure should be seen “in the light of a very strong comparison base in June 2021”, an increase by 24%, while July and August increased by 6%.

The retailer is also accelerating its expansion in Latin America, with what it calls a large number of leases signed for new stores.

“The H&M group’s sales increase in the quarter is a result of well-received collections with increased full-price sales and lower markdowns. With a well-positioned customer offering, combined with physical and digital sales channels that strengthen each other, we are fully focused on meeting customers’ ever-increasing expectations of affordable and sustainable fashion,” says Helena Helmersson, CEO.

Commenting on the numbers, Emily Salter, senior analyst at GlobalData Retail, notes despite H&M’s strong sales growth in its H1 FY2021/22 of SEK17.1bn to SEK103.7bn, it has still not recovered from the impacts of Covid, with revenue trailing 4.4% behind pre-pandemic levels.

“H&M stands out as a multichannel retailer that has not yet managed to recuperate its sales despite a decent performance from its online channel since the start of the pandemic. The blame partially lies with its product range and reputation, with its collections being perceived as less fashionable than key rival Zara, with Inditex’s Q1 FY2022/23 (ending 30 April) sales an impressive 13.8% ahead of pre-pandemic levels. To boost its sales, H&M must focus on improving its fashion credentials and placing less focus on basics in its eponymous brand. It should also promote the low prices of its products throughout 2022 as consumers place more importance on value for money.

“The pausing of operations in Russia, Belarus and Ukraine has dampened H&M’s performance, with sales excluding the three countries in Q2 impacting the growth rate by 5ppts, and Eastern Europe unsurprisingly being the worst-performing region in the quarter, with sales falling by 23% in local currencies. The Asia, Oceania, and Africa region also experienced weak growth, with sales only rising by 5% in local currencies, likely dragged down by China. The retailer is closing its Shanghai flagship store amid difficulties trading in the region, suffering from the impacts of repeated Covid-19 lockdowns and a lack of appeal among consumers. The initial backlash among shoppers came after Western brands made statements condemning the alleged use of forced labour in cotton production in the Xinjiang region of China, but many Chinese consumers have switched to purchasing from domestic brands in the long term.

“The group must continue to innovate to revitalise its performance, focusing on improving its digital proposition, revamping its store estate and developing its sustainability initiatives. & Other Stories launched on rental platform HURR in the period, expanding the retailer’s presence in the burgeoning rental market, with occasionwear rental already available in selected H&M stores in the Netherlands, Sweden, and Germany.

“The retailer is also trialing more digital features in its stores, with a pilot of smart mirrors in Cos stores in the US, with mirrors in fitting rooms to offer personalised product and styling recommendations, and smart mirrors on the shop floor for virtual try-on and styling. This is a good step in the right direction to make the shopping experience more convenient and exciting, but such features must also be integrated into H&M brand stores which can often feel lackluster and tired.”

Earlier this month, H&M Group said net sales in local currencies increased by 12% in the second quarter which spans the period from 1 March to 31 May, compared with the corresponding period last year.