Pandemic Punishes H&M With First Quarterly Loss In Decades 

Sweden’s Hennes & Mauritz (H&M), the world’s second-largest clothing retailer, recorded its first quarterly loss in decades due to COVID-19 shuttering many of its stores.

“At most around 80 percent of our stores were closed in the second quarter and in those markets where stores were open, demand was significantly subdued. Although we took rapid and decisive action, which reduced our costs considerably, it was impossible to compensate for the 50 percent drop in revenue, and, as we had previously communicated, the quarter was loss-making,” Chief Executive Helena Helmersson said in a statement.

H&M sales per week vs. last year 

H&M warned in April that a quarterly loss was expected in 2Q and said heavy discounting of products would significantly squeeze gross margin. Due to the high level of markdowns, earnings are expected to deteriorate through 3Q. 

“Rapid adjustments to product purchasing and buying plans meant that the stock-in-trade was able to be reduced somewhat in the second quarter compared with the previous year. However, since there is an oversupply of spring products throughout the industry, and the market remains weakened, we expect markdowns in relation to sales to increase again in the third quarter. We are continuing to adjust costs to mitigate the negative impact of the Covid-19 situation,” Helmersson said.

The pre-tax loss was 6.5 billion crowns against a year-earlier profit of 5.9 billion. Analysts had, on average, forecast a 6.4 billion crown loss, according to Refinitiv data.

H&M shares trading on the Stockholm Stock Exchange traded 2% lower on Friday, still, 32% below its pre-corona peak observed in late January. 

At the moment, 7% of its more than 5,000 stores remained shuttered – at the peak of the lockdowns, at least 80% of the retailer’s stores were closed. It said it would expedite closures and open fewer new stores this year despite the easing of restrictions seen around the world. 

“At the end of the second quarter, i.e., on 31 May, 1,328 of the group’s stores remained temporarily closed, and 978 stores have reopened since. Currently, 350 stores are temporarily closed, representing 7 percent of the group’s stores. For a large number of the group’s stores, there are still local restrictions and opening hours are limited,” Helmersson said.

About 12% of the retailer’s stores reside within the US. Coronavirus cases are increasing in Texas, Florida, and California as reopening delays have already been seen in some of these states. Hopes for a V-shaped recovery are fading fast as the emergence of the second virus wave is becoming more evident by the week. This is more bad news for all retailers.