H&M Shares Slide as Retailer Unveils Cost Cutting Plan to Counter Market Headwinds

By Scott Kanowsky

Investing.com -- Shares in H&M Hennes&Mauritz AB B (ST:HMb) dipped in early trading on Thursday after the Swedish fast fashion brand unveiled a major new cost cutting strategy in response to lower-than-expected third-quarter earnings.

The world's second-biggest fashion retailer said it will initiate a plan to "streamline" the business, with the move expected to result in SEK 2B in savings by the second half of 2023.

Chief executive officer Helena Helmersson said in a statement that the firm will also aim to improve recent supply chain issues, which have left it with a glut of inventory.

For the June-August period, profit before tax dipped to SEK 689M from SEK 6.09B in the corresponding timeframe last year. Analysts cited by Reuters had expected the figure to come in at SEK 2.98B.

H&M blamed about half of the decline on a SEK 2.1B one-time expense related to the closure of its Russian operations following the outbreak of the war in Ukraine. The company also pointed to a decision to not raise prices to make up for a spike in raw material and freight shipping costs, as well as a surge in the value of the U.S. dollar.

"Overall, these factors had a substantial negative impact on profit for the quarter," Helmersson said.

The figures compare poorly with those from Industria de Diseno Textil SA (BME:ITX), H&M's biggest rival. A 25% rise in sales drove profits 41% higher at Inditex in the last quarter, giving the Zara owner the confidence to push through price increases across its various ranges. However, growth has showed signs of slowing in the August 1-September 11 period.

Analysts at Handelsbanken warned that the outlook for H&M is "concerning," adding that near-term profit estimates are likely to be cut despite a 7% year-on-year rise in revenues during the initial weeks of its fiscal fourth quarter.

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