Fashion retail giant H&M has reported a significant increase in annual earnings, yet simultaneously revealed a concerning slowdown in sales over the recent winter period. The company highlighted a challenging economic environment as it navigates fluctuating consumer demand.
Annual Financial Performance
H&M announced a robust 6% rise in operating profits, reaching 18.4 billion Swedish krona, equivalent to approximately £1.5 billion, for the financial year ending November 30. This growth was largely driven by an impressive 38% surge in profits during the final quarter, bolstered by strong Black Friday trading activities.
Sales in local currencies showed a modest increase of 2% over the entire year and remained steady across the fourth quarter. However, the retailer has issued a cautious outlook for the immediate future.
Winter Sales Forecast and Challenges
The company expects net sales in local currencies to decline by 2% year-on-year for the two-month period ending in January. This anticipated drop is attributed to subdued shopper demand during the Christmas season, following exceptionally strong sales during the Black Friday week in late November.
H&M explained that the high demand in November led to a natural slowdown in several markets throughout December. Additionally, the group foresees a further impact on sales in February due to a negative calendar effect associated with the timing of the Chinese New Year.
Strategic Adaptations and Market Monitoring
In response to these challenges, H&M emphasised its commitment to closely monitoring developments in global trade and potential trade restrictions. The company stated that it maintains good flexibility within its supply chain and through the pricing of its customer offerings, which provides opportunities to adapt the business to changing market conditions.
Chief executive Daniel Erver commented on the company's strategic approach, saying, "Through a strengthened customer offering, good cost control and improved inventory productivity, we continue to take important steps towards all our long-term targets in a challenging environment."
Organisational Changes and Future Outlook
H&M concluded its financial year with 4,101 stores, representing a 4% reduction in its physical footprint. The global workforce also decreased by nearly 2%, now standing at 94,744 employees.
Erver further addressed the broader economic context, noting that the start of the new year has been marked by continued geopolitical and economic uncertainty. He stressed the importance of maintaining an efficient organisation with short decision paths, operating close to the customer, and ensuring a high degree of flexibility alongside continued good cost control.
The fashion retailer's mixed results underscore the volatile nature of the current retail landscape, where strong promotional periods can lead to subsequent demand dips, requiring agile business strategies to sustain long-term growth.
