H&M Expecting Less-Than-Stellar Q1 Growth

Words by Retail Bum

H&M Expecting Less-Than-Stellar Q1 Growth
H&M Expecting Less-Than-Stellar Q1 Growth

With a second round of lockdowns impacting its brick and mortar business, H&M, the second-largest fashion retailer in the world, is not expecting a significant improvement in sales in the first quarter.

The decline in Q1 sales marks a continuation of the brand’s loss in momentum. The Swedish retailer’s pretax profit fell by 88 percent to $245 million in the 12 months ending November last year, Reuters reported. In Q4, the company’s profit declined by 32 percent year-on-year, with sales declining by 10 percent.  

This quarter, new lockdown measures are resulting in store closures. More than a third of the retailer’s 5,000 store locations are currently closed. Local-currency sales were down by 23 percent between December and January 27, which was less than what the analysts had reportedly expected. 

“Q1 is a small quarter … so with a drop of 23% or more in topline, it’s very difficult to achieve profit in a quarter like that,” H&M head of investor relations Nils Vinge told analysts on a call.

The company is betting on an increase in online sales and demand for products such as winter jackets in the coming months to help it sustain the overall loss in sales.

Analysts expect the company to eventually recover as restrictions are lifted and consumers embrace their normal lives. 

“H&M … has been gradually improving its offer which has led to an improved underlying (excluding COVID-19) performance, which should in time be accompanied by an improved free cash flow trend,” said RBC analyst Richard Chamberlain.

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