H&M powers ahead in Q1, but Covid-19 sends Q2 into reverse
H&M delivered its Q1 results on Friday as well as an update on what's been happening since the quarter ended. And it showed just how far trading has deteriorated in recent weeks. The company's sales rose 8% in the three months to February 29 but sales in March have decreased 46%, even though online sales rose in double-digits. And while Q1 profit soared, it said Q2 will be loss-making.
The coronavirus is having a devastating effect on its business. As of 31 March, 3,778 out of 5,065 stores were closed. And that 46% sales plunge looks like it will get even bigger as all stores have been closed in several of its largest markets since the middle of the month. That means the March figures included a couple of weeks where some sales in key markets were still being made in its physical locations. But at present, all stores in Germany, the US, the UK, France, Italy and Spain are shut.
On the plus side, online sales during March rose 17% in local currencies with digital sales channels remaining open in 47 of its 51 online markets. And in China, demand has “gradually started to recover. More or less all of the group’s stores have now re-opened and sales have gradually increased”.
Looking back at Q1, its gross profit rose 10% to SEK28 billion (€2.5bn/£2.2bn/$2.7bn), which corresponds to a gross margin of 51%, up from 50% a year earlier. Profit after financial items more than doubled to SEK 2.5 billion, “which shows that the company’s transformation work has had a good effect,” it said. It added that its work on its product offer meant decreased markdowns and an improved inventory level. And profit after tax increased to SEK1.9 billion from SEK1.16 billion.
The company had reported its Q1 sales earlier last month, but to recap, they rose to SEK54.948 billion year-on-year. And while they rose 8% on a reported basis, in local currencies they were up 5%. Excluding the markets that were most affected during the quarter by the coronavirus, local currency sales would have risen 7%.
The company also said that online sales rose an impressive 48% (or 44% in local currencies).
The company has been taking plenty of measures to soften the impact of the coronavirus on its business and it was previously reported that it's cancelling its dividend and deferring investment. It’s also reducing working hours for many employees, speaking to landlords about store rents and increasing its overall digital activities.
CEO Helena Helmersson said: “The strong improvement in profit in the first quarter shows that customers appreciate our assortment and that our transformation work is having a good effect. The outbreak of coronavirus and the extraordinary public measures taken to reduce the spread of the virus have put people, communities and companies in an exceptional situation. However, I am convinced that as a company – once we are through this – we will continue to stand strong”.
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