H&M restores profit margins and China relations

The Swedish H&M Group is finally seeing its profit margins improve, even though the warm September weather is detrimental to winter clothing sales. In China, the fashion giant did manage to improve its position again after a lengthy boycott.

Too hot

In local currency, H&M sales are down by 10 % in September due to the exceptionally warm weather which causes consumers to put off buying autumn and winter clothes. While CEO Helena Helmersson tried to downplay the decrease in an interview with Reuters, the figures do contrast sharply with arch-rival Inditex. The latter saw its sales rise 14 % between 1 August and 11 September.

On the bright side, operating profit climbed to 4.74 billion Swedish crowns (410 million euros) in the third quarter, up from 902 million crowns a year earlier. It should be noted that H&M lost 2.1 billion crowns due to its exit from Russia last year.

Prices may fall again

Compensating for Russia is China, where H&M does win back its place little by little. When H&M decided in 2020 to stop sourcing cotton from the controversial Xianjing region, where Uighurs perform forced labour in “re-education camps”, China responded with a boycott. Ever since 2021, brands like Nike, Gap and H&M have been struggling to sell their products there. Last year, however, H&M was allowed back on Alibaba’s Tmall platform and since last month the brand has also been allowed back on JD.com. Still, H&M is still not where it wants to be in China, Helmersson admits.

The prospects are good, so H&M remains ambitious: the clothing group wants to raise its current 8 % profit margin to 10 % next year, courtesy of improved inventory management and cost savings. CFO Adam Karlsson even thinks that price cuts will become possible, now that cost pressure is decreasing.