H&M Anticipates Further Price Increases, With Earnings Boosted By Lesser Discounting

H&M, the budget apparel retailer, said on Wednesday that it plans to raise prices further this year after announcing forecast-beating profits with margins boosted by fewer discounts.

H&M boosted prices in the first half of the year in response to higher transportation and raw material costs, and Chief Executive Officer Helena Helmersson told Reuters that prices will likely climb throughout the remainder of the year. Hikes will differ based on the competitive climate, she said.

“Although most of the restrictions associated with the Covid-19 pandemic essentially seem to be over, many challenges remain. Disruption and delays still exist in the supply chain, but are gradually being eased. At the same time, there is substantial inflation,” H&M said.

Pretax profit at the world’s second-largest fashion retailer increased by 33% year on year to 4.78 billion crowns ($471 million) in the Swedish group’s second quarter, on sales growth of 12 per cent in local currencies.

At 1133 GMT, H&M’s shares were up 5 per cent after the company reported a 5 per cent increase in March-May profit as customers returned to its stores following the epidemic.

Despite rising expenditures, an increase in full-price sales and a drop in markdowns helped H&M expand its operating margin to 9.2 per cent from 8.3 per cent in the second quarter.

“Sales in physical stores increased substantially while online continues to do well,” Helmersson said in a statement.

Refinitiv surveyed analysts predicted a 3.87 billion crown profit on average.

Local-currency sales declined 6 per cent in June, the first month of H&M’s third quarter, owing primarily to the company’s withdrawal from Russia, Ukraine, and Belarus. Russia was H&M’s sixth-largest market, accounting for 4% of sales in the fourth quarter of 2021.

In a letter to clients, RBC analyst Richard Chamberlain stated that June sales were lower than projected. In June 2021, sales skyrocketed as over 1,000 closed stores reopened after being forced to close due to the pandemic. CEO Helmersson stated that comparisons between July and August would be easier.

In China, H&M’s sales have fallen in the last year as a result of a customer boycott over the company’s stance on the Xinjiang area and a general drop in consumer demand owing to COVID-19 lockdowns.

Inditex, the parent company of Zara, announced an 80 percent increase in profit in its fiscal first quarter earlier this month, owing to strong sales.

H&M also announced on Wednesday that it has decided to use an authorization granted by shareholders at its annual general meeting in May to buy back 3 billion crowns in shares.

(Adapted from Business-Standard.com)

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