Jan 28, 2023
H&M said on Friday soaring costs had slashed its profits, the latest fast-fashion retailer to feel the pinch as consumers cut back, while LVMH and Salvatore Ferragamo revealed the damage to luxury sales caused by China’s Covid-19 policies.
Shares in H&M, the world’s No. 2 fashion retailer, fell as much as 6% in early trade after quarterly operating profit sank to 821 million Swedish crowns ($79.7 million) from 6.26 billion a year earlier. That was well below a mean forecast of 3.67 billion crowns in a Refinitiv poll of analysts.
The results highlighted the challenge for fashion retailers facing higher bills for textiles, energy and shipping at the same time as rising costs for food, energy and rents force consumers to be more picky about what they buy.
“Rather than passing on the full cost to our customers, we chose to strengthen our market position further,” CEO Helena Helmersson said in a statement.
H&M last year launched a drive to cut costs by 2 billion crowns annually, with savings from layoffs and other measures expected to start showing from the second half of 2023.
But it has struggled to keep up with bigger rival Inditex, whose flagship brand Zara aggressively raised prices last year without turning off shoppers.
Zara has outperformed rivals after selling higher-priced garments and enticing shoppers who might have otherwise spent money at luxury stores.
Britain’s Superdry on Friday cut its profit forecast for this year as its wholesale business underperformed.
Earlier this week, clothing retailer Primark cautioned economic headwinds may dent consumer spending this year.
At the other end of the market, organic sales at the world’s biggest luxury group grew 9%, a slowdown from 20% in the first nine months of the year.
That was due to the hit in China from lockdowns and its subsequent exit from a zero-Covid policy, which has spurred a surge of infections in the world’s second-largest economy.
Beijing authorities relaxed travel curbs in December, causing problems in warehouses, stores and distribution networks for LVMH, although the company said the situation had improved markedly since the beginning of the year.
“Everybody was sick, it’s as simple as that,” LVMH’s finance chief Jean-Jacques Guiony said.
Europe’s most valuable listed company, LVMH owns dozens of high-end labels including fashion houses Louis Vuitton and Dior.
Disappointment over the impact of the China disruptions on its margins caused a record-breaking run in LVMH shares to briefly halt on Friday.
The luxury industry is nevertheless expected to be one of the biggest winners from the loosening of restrictions that kept shoppers out of stores in China for months.
Salvatore Ferragamo likewise blamed a slowdown in the fourth quarter on Covid restrictions in China as the Italian luxury goods group reported a 5.7% rise in sales at constant exchange rates last year.
In contrast, French spirits maker Remy Cointreau posted a smaller-than-expected drop in third-quarter sales, as steep shipments to China ahead of the Lunar New Year partly offset lower cognac consumption in the United States.
That echoed comments from the world’s largest spirits maker Diageo, who on Thursday signalled that robust demand for its drinks as people made cocktails at home during Covid-19 lockdowns may be slowing in some parts of the world, particularly North America.
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