H&M Emphasizes Fast-Fashion Downturn As Luxury Segment Suffers In China

According to a statement from the apparel and fast fashion giant H&M, rising expenses had reduced its profits, making it the latest fast-fashion brand to be impacted by high inflation which has forced consumers to cut back on spending. 

At the same time, LVMH and Salvatore Ferragamo highlighted  the impact of the COVID-19 policies in China on sales in the luxury segment.

H&M stocks dropped by as much as 6% in early trade following the company reporting a drop in quarterly operating profit to 821 million Swedish crowns ($79.7 million) compared to 6.26 billion for the same period a year earlier. In a Refinitiv poll of analysts, the average forecast was 3.67 billion crowns.

The findings underscore the challenging problem that the global fashion retailers are encountering because of higher textile, energy, and shipping expenses while rising food, energy, and rent costs are forcing their customers to spend less and be choosy about what they purchase. 

“Rather than passing on the full cost to our customers, we chose to strengthen our market position further,” CEO Helena Helmersson said in a statement.

H&M announced last year that it would cut costs by 2 billion crowns per year, with savings from layoffs and other measures expected to begin in the second half of 2023.

However, it has struggled to keep up with larger rival Inditex, whose flagship brand Zara raised prices aggressively last year without alienating customers.

Zara has outperformed competitors by selling higher-priced garments and enticing shoppers who would otherwise shop at luxury stores.

Superdry, based in the United Kingdom, cut its profit forecast for this year on Friday, citing underperformance in its wholesale business. At 1316 GMT, its shares were down more than 18%.

Primark, a clothing retailer, warned earlier this week that economic headwinds could reduce consumer spending this year.

The results pegged the first week of the fourth-quarter corporate earnings season, with expectations dimming even as data suggests a soft economic landing in 2023.

The results in the United States have not been entirely positive. Intel (INTC.O) surprised the market late Thursday with a revenue forecast that fell short of Wall Street estimates by about $3 billion.

Nonetheless, China’s reopening after three years of zero-COVID policies, as well as Europe’s ability to keep the lights on through the winter, have fueled gains in equities.

This month, the pan-European STOXX index is expected to rise more than 6%, making it the best January since 2015.

“While it is very early days in Europe’s reporting season, the newsflow does appear to have taken a turn down, with more companies missing than beating EPS expectations for the first time in many quarters,” Morgan Stanley equity strategist Graham Secker said on Friday.

According to data, analysts have downgraded their earnings forecasts for European companies at the fastest rate since July 2020.

Organic sales at the world’s largest luxury group increased 9% in the first nine months of the year, a slowdown from 20% in the first nine months of the year.

This was due to the impact of lockdowns in China and its subsequent abandonment of a zero-COVID policy, which has resulted in an increase in infections in the world’s second-largest economy.

Beijing authorities eased travel restrictions in December, causing issues in LVMH’s warehouses, stores, and distribution networks, though the company said the situation had improved significantly since the beginning of the year.

“Everybody was sick, it’s as simple as that,” LVMH’s finance chief Jean-Jacques Guiony said.

LVMH is Europe’s most valuable listed company, owning dozens of high-end labels such as Louis Vuitton and Dior.

Disappointment over the impact of China disruptions on its margins caused LVMH shares to briefly halt their record-breaking run on Friday. The stock fell 0.65%.

The details were similar to those revealed by Richemont and Burberry last week.

Despite this, the luxury industry is expected to be one of the biggest winners from the relaxation of restrictions that kept shoppers out of Chinese stores for months.

Salvatore Ferragamo, which reported a 5.7% increase in sales at constant exchange rates last year, also blamed the fourth-quarter slowdown on COVID restrictions in China.

Remy Cointreau, on the other hand, warned that it expected cognac demand in the United States to fall well into 2023. The forecast came after the French spirits company reported lower third-quarter sales as the positive effects of the coronavirus pandemic faded.

That echoed comments from Diageo (DGE.L), the world’s largest spirits maker, who said on Thursday that strong demand for its drinks as people made cocktails at home during lockdowns may be slowing in some markets, particularly North America.

(Adapted from FlipBoard.com)

Categories: Economy & Finance, Entrepreneurship, Geopolitics, Regulations & Legal, Strategy, Sustainability

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