H&M seeks cost savings as Russia, inflation erode earnings

STOCKHOLM (Sept 29): Hennes & Mauritz AB (H&M) plans to cut costs by two billion Swedish kronor (RM817.9 million) annually after the retailer's exit from Russia and higher garment and transport costs caused earnings to slump.

Operating profit dropped 86% in the three months through August, missing analysts' estimates. The figure includes a previously communicated one-time charge of two billion kronor for winding down operations in Russia. The stock fell as much as 6.4% in Stockholm, approaching an 18-year low.

Chief executive officer Helena Helmersson, who started off the year by setting an ambitious goal of doubling sales by 2030, has been struggling recently to generate revenue growth even as rival Zara-owner Inditex SA zips ahead.

Retailers are suffering a drop in demand as consumers lose purchasing power as energy and gasoline bills mount. Next plc issued its second profit warning this year on Thursday as soaring inflation discourages UK shoppers from buying non-essential items.

H&M's third-quarter sales declined 4% excluding currency shifts. Revenue in September has gained 7% on the same basis.

The retailer said markdowns increased somewhat in the quarter, which also had a negative impact on its gross margin. The prospects for purchasing in the fourth quarter are very negative as the strength of the dollar lifts garment costs, it said.

The cost savings are expected to start in the second half of next year.