Significant cost increases made it difficult for the Swedish clothing group Hennes & Mauritz AB (H&M) in the third quarter of the 2021/22 financial year. The parent company of brands such as H&M, Cos, Monki, Weekday, & Other Stories and Arket therefore had to report a sharp drop in profits on Thursday. However, the company emphasized that business had improved again in the past few weeks.

    In the third quarter, which ended on August 31, demand was below expectations. The group announced two weeks ago that sales could only be increased by three percent to 57.5 billion Swedish crowns (5.2 billion euros). In the respective local currencies, sales even fell by four percent.

    Higher costs and the settlement of the Russian business weighed on the result

    In the current interim report, CEO Helena Helmersson admitted that the result was additionally burdened by negative special effects as a result of the settlement of the Russian business and “numerous external challenges”. Operating profit fell by 85.6 percent to 902 million Swedish crowns compared to the same quarter of the previous year. Adjusted for the financial consequences of the withdrawal from Russia, it slipped by 52.1 percent to 3.00 billion Swedish kronor. The reported net result was 531 million Swedish crowns (48 million euros) and thus 88.7 percent below the corresponding level of the previous year.

    “Increased raw material and freight prices and a stronger US dollar led to significant cost increases when purchasing goods,” said CEO Helmersson. “We have decided not to pass on the increased costs in full, which is reflected in the gross margin. Collectively, these factors had a significant negative impact on quarterly earnings.”

    In view of the ongoing strain on earnings, the company announced a cost-cutting and efficiency-enhancement program that is expected to result in annual savings of two billion Swedish crowns. The Group expects the first visible effects of these measures in the second half of the coming year.

    Revenue growth accelerated again in the first weeks of the fourth quarter

    In the first nine months of the current financial year, the clothing supplier generated sales of 161.1 billion Swedish crowns. It thus exceeded the corresponding prior-year level by 13 percent (currency-adjusted +8 percent). Reported net profit fell 30.7 percent to SEK 4.43 billion.

    Since the beginning of the fourth quarter, the group has been able to pick up speed again. Currency-adjusted sales in the period from September 1 to September 27 were seven percent higher than the comparable prior-year figure, the company said. “The fall collections were well received and the increase in sales in September is important proof that the H&M group is growing even when the purchasing power of customers is falling,” stressed CEO Helmarsson. At the same time, however, the group warned that price reductions are likely to have a “slightly higher” impact on earnings than in the final quarter of last year.