Covid causes H&M's first loss in decades

Swedish fashion chain H&M recorded a net quarterly loss for the first time in decades: sales halved as a result of the lockdowns and price cuts put pressure on margins.

Gradual recovery

The coronavirus pandemic pushed H&M into its first loss in ages: the second quarter ended with a pre-tax loss of 6.5 billion Swedish Krona (620 million euros), compared to a profit of 5.9 billion Krona a year earlier. Analysts had expected a loss of 6.4 billion Krona, as the fashion group had already sent out a warning. Nevertheless, it is the first loss in decades for the Swedish fashion company.

Sales have halved in the past quarter due to lockdowns and the recovery is now gradual: in June the group still sold 25 % less – in local currencies – than in the same period last year. As a result, there is still a lot of remaining spring stock, which has forced the group to further reduce prices – putting further pressure on margins.

Deeper price cuts

CEO Helena Helmersson sees the same thing happening across the industry and warns against even deeper price cuts in the current third quarter: she says that H&M’s pace of recovery varies across markets, as local constraints differ, but that so far it has been better than expected. Today, 7 % of the group’s 5,000 stores are still closed.

H&M will accelerate closing underperforming stores and will also open fewer new stores this year than initially planned, although the fashion giant is not yet releasing concrete figures on this. Nevertheless, analysts show Reuters to be relatively satisfied with how the company weathered the storm.