Fast fashion giant H&M warns it will not meet profitability target this year
Fast fashion giant H&M has warned it will not meet its profitability target this year after a weather hit to sales and amid cost pressures.
The group revealed that earnings in its third quarter tumbled by a worse-than-expected 26 per cent to £258m as sales fell 3 per cent after a poor start due to cold weather in June.
Sales on a local currency basis were flat in the three months to September 30, despite what H&M described as a “challenging start” to the quarter.
H&M’s recently hired chief executive Daniel Erver, who took the reins at the end of January, cautioned that the group would fail to meet its 10 per cent profitability target as higher costs take their toll.
Mr Erver said: “Consumers’ living costs have remained high during the year, and at the same time we continue to see turbulence in the world around us. External factors have impacted our sales revenue and purchasing costs more than we expected. At present we estimate that this year’s operating margin will be lower than 10 per cent.”
H&M’s operating margin for the year so far stood at 7.4 per cent, with a third-quarter margin of 5.9 per cent.
The group, which has 4,298 stores worldwide, had already said in June that it was coming under pressure from higher material costs, while the Red Sea shipping disruption is adding time and expense.
It has also faced increasing competition from the likes of budget online fashion giants Shein and Temu, as well as high street competitor and Zara owner Inditex.
H&M has also been leading a concerted marketing push featuring singer Charli XCX as it looks to boost sales.
The group said its autumn collection has been “very well received” and that sales in local currencies are set to jump by 11 per cent in September.
But it said: “The cost of markdowns in relation to sales in the fourth quarter is expected to increase somewhat.”