H&M signals higher prices after earnings fall well below expectations

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  • Q1 pre-tax profit of SEK 282m vs. forecast of 1.04bn
  • Profit, sales lower than pre-pandemic Q1 2020
  • Sales growth slows in March compared to the first quarter
  • Stores in Russia, Belarus and Ukraine are temporarily closed
  • Stocks fall

STOCKHOLM, March 31 (Reuters) – Sweden’s H&M (HMb.ST) said on Thursday it is likely to raise prices this year as it reported a December-February profit that fell sharply below expectations amid high utility costs. raw materials and transportation.

The world’s second-largest fashion retailer made a pre-tax profit of 282 million crowns ($30.5 million) in its first quarter, compared with a loss of 1.4 billion a year earlier when nearly half of its stores had been closed by the pandemic.

In addition to missing the average analyst forecast for a profit of 1.0 billion crowns, the result was also well below the 2.5 billion crowns achieved in the pre-pandemic first quarter of 2020, sending H&M shares down 10 % at 11:30 a.m. GMT.

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“Sales and earnings in 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 new wave of COVID-19 in certain markets.

Increased investment in technology and the supply chain also weighed.

“When it comes to inflation, it is mainly raw material and transport costs that affect us and we see, like many others, that we have to adjust our prices,” CEO Helena Helmersson told Reuters. “We will offer different types of products in different countries depending on competition and demand.”

The plan was for price increases to be lower than rivals and not affect core clothing lines, she said in an interview.

First-quarter sales were up 18% year-on-year in local currencies, H&M reported earlier, but still down from two years ago. Read more

Sales growth in the March 1-28 period slowed significantly from the first quarter, to 6% in local currencies.

Excluding Russia, Belarus and Ukraine, where H&M has temporarily closed stores, the March increase was 11%. Last year, Russia accounted for 4% of group sales.

“There is continued uncertainty regarding developments and the company is continuously monitoring and assessing the situation,” H&M said of the Ukraine crisis.

H&M said its collections were well received in the first quarter, driving a higher share of full-price sales than a year earlier, as well as in March. Helmersson said that in countries where spring has arrived, colorful clothes in particular are in demand.

Biggest rival Inditex (ITX.MC), owner of Zara, has weathered the pandemic and global supply chain disruptions better than H&M. It increased sales 33% year-over-year and 21% from the same period in 2019, in the six weeks from February 1. Learn more

($1 = 9.2620 Swedish crowns)

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Reporting by Anna Ringstrom; Editing by Jan Harvey, Kirsten Donovan

Our standards: The Thomson Reuters Trust Principles.

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