H&M’s profit fell by 67% in 2022 due to the burden of high costs

The Swedish group Hennes & Mauritz (H&M), the second largest textile distributor after Inditex, suffered a sharp setback in its results last year, weighed down by the greater impact of the electricity bill, higher transport costs and the increase in the price of the garments you buy from your suppliers. Net profit fell 67%, to 3,566 million crowns (318 million euros), in its last fiscal year (from December 1, 2021 to November 30, 2022), with losses of 864 million crowns (77 million euros) in the fourth quarter. The results, published this Friday, pushed down the company’s shares, which fell 7.9% at the opening of the Stockholm Stock Exchange.

The sales of the giant fast fashion they grew by 12%, to 223,553 million crowns (19,960 million euros) in an inflationary context, although the company affirms that it has not transferred the increase in costs in its entirety, which also erodes profitability. “Instead of passing on all the costs, we have chosen to strengthen our position in the market,” explains the CEO, Helena Helmersson, in a statement. The operating result has been reduced by 53%, to 7,169 million crowns (640 million euros), with a gross margin of 50.7%.

The end of operations in Russia after the invasion of Ukraine has also had an impact on the accounts, along with the plan to lay off 1,500 employees. Another point that weighs is the fact that H&M buys a higher percentage of garments from Asian suppliers than Inditex, for example, which is hurting it at the moment due to the increase in the cost of transport. The company is trying to bring production closer to Europe to reduce these costs.

The pandemic hit H&M hard, and just as it expected to recover in 2022, war broke out in Ukraine, which has had a huge impact on transportation and energy costs around the world. “External factors that have had a negative effect on our purchasing costs are gradually receding and we expect to return to positive data in the second half of 2023,” Helmersson forecasts. Purchases from suppliers are already reducing their costs compared to the same period last year, according to the executive, who is confident that the cost reduction program launched in 2022, which seeks annual savings of 2,000 million crowns, will begin to be noticed in the second part of 2023.

The company has advanced that sales grew by 5% in December and January, during the Christmas holidays and sales. Although in general the company has warned that the purchasing conditions from suppliers continue to be very negative.

The year closed with 4,465 stores worldwide, 336 fewer than in 2021. The only brands with a positive store balance were Arket (launched in 2017 with own and third-party brands and a cafeteria in stores, and which has 25 stores after opening one in 2022) and H&M Home, which already has 31 points of sale, four more. Western Europe and America are the main sales markets of the Swedish firm.

The average number of employees for the group as a whole was 106,522 as of November 30, 2022, compared to 107,375 the previous year.