H&M sees second-quarter loss, plans cost cuts as pandemic slams sales in March

H&M sees second-quarter loss, plans cost cuts as pandemic slams sales in March

April 6, 2020 Off By follenderwerks

Sweden’s H&M (HMb.ST), the world’s second-biggest clothing retailer, said on Friday it expected a loss in the second quarter after reporting a 46% plunge in March sales as the coronavirus pandemic took a toll on the retail sector.

The virus outbreak that began in China late last year and is spreading around the world has prompted governments to close businesses and order millions of people to stay at home to try to slow the contagion..

It has forced H&M to temporarily close most of its stores, flag big layoffs and scrap its annual dividend for the first time since its 1974 listing.

H&M’s biggest rival, Zara owner Inditex (ITX.MC), has also announced big temporary layoffs, and booked a provision as the slump in demand reduced the value of its inventory.

“We have never been through times as demanding as these,” newly appointed H&M Chief Executive Helena Helmersson told analysts and journalists on a call.

With an unprecedented fall in sales and a dismal second quarter already priced in, H&M’s shares were however up 4% by 0910 GMT as the retailer said it would cut costs and planned to strengthen its liquidity buffer with new credit. The shares plunged 40% in the past month.

Analysts at Jefferies said it was sensible to expand credit facilities “given narrower liquidity buffers relative to peers, as we entered an elongated period of demand weakness/absence”.

Helmersson said the situation was becoming increasingly demanding with each day the group had to keep stores closed.

“With the dramatic decline in the market we have to make many difficult decisions and take forceful action,” she said in a statement.

JP Morgan analysts said H&M’s March sales were not worse than feared, and highlighted e-commerce growth, cost flexibility and a fast recovery in China as positives in the report.

“While the backdrop is dire, for everyone and not just for H&M, we think the snippets provided by H&M are relatively positive versus expectations,” they said in a research note.

OUT OTHER SIDE

H&M said it expected to cut operating expenses excluding depreciation by around 20-25% in the second quarter and lowered its investment plans for the year.

The retailer, which had more than 125,000 employees by late last year, is in talks to reduce working hours for tens of thousands of workers, and considering redundancies.

In results that still bore little mark of the virus outbreak, H&M’s fiscal first-quarter pretax profit more than doubled to 2.50 billion crowns ($248 million) from 1.04 billion a year-ago. Six analysts polled between March 17 and March 26 had on average expected a rise to 1.47 billion crowns, according to Refinitiv data.

“We think the debate on H&M will be between investors looking at how ugly it can get short term and investors thinking about who could come out the other side relatively stronger,” RBC analyst Richard Chamberlain said in a note.

“H&M should be one of those, albeit Inditex looks better placed for now given its flexible business model and stronger balance sheet,” he said.

H&M said stocks would temporarily be growing again, having shrunk for three quarters.