Folding Clothes | Finimize

What’s going on?

H&M reported on Friday that its profit took a nosedive last quarter.

What does this mean?

H&M is the world’s second-biggest clothing retailer, but that reputation probably wasn’t much consolation during last quarter’s hammering. For a start, getting goods in the door got more expensive, which wasn’t helped by the strong US dollar upping the cost of sourcing clothes. And good old H&M didn’t just offload those costs on customers: it swallowed some itself – which might have helped sales a little, but certainly hurt profit a lot.

That’s not to mention the so-called “cost-cutting program” that’s actually increased costs in the short term. It all proved too much for H&M, still reeling after the war in Ukraine closed its profitable Russian business: the firm announced its operating profit fell a disastrous 87% from the same time the year before.

Why should I care?

For markets: Dress to unimpress.
H&M’s share price has dropped so far that it’s underperforming arch-rival Inditex by over 30% in the last year. And that’s no surprise: by one key profitability measure, H&M’s achieved about half of what Inditex has these past four years.

One reason for that is that the Swedish retailer lacks Inditex’s manufacturing flexibility, winding up with piles of unwanted clothes it’s having to discount heavily to get out the door. So sure, H&M has some valiant self-improvement plans – like sourcing stock closer to home in order to cut shipping costs – but it could be a while before those measures bear fruit. Zooming out: Lap of luxury.
Luxury giant LVMH doesn’t have to bother with plebeian tactics like “cutting costs”: just last week the super-luxe conglomerate – owner of big-name, big-price-tag brands like Louis Vuitton and Dior – announced that 2022 was a record success.

And the company’s gearing up for more of the same in 2023: a fairly safe bet given that China, the world’s second-biggest luxury market, is about to regain its appetite.

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