H&M Admits Massive Profit Slump
Provideo Financial discussed the admission by global fashion giants H&M of a massive slump in profits.
- (1888PressRelease) April 15, 2011 - Swedish fashion giants Hennes and Mauritz has reported a staggering 30% drop in profits in the first quarter. Profits have dropped to €290 million from €417 million in 2010. This is the third quarter in successions that H&M hasn't met profit predictions.
The main contributing factors to this slump in profits are considered to be rising cotton prices and the negative of the Swedish krona. Shares have dropped approximately 3% since the news was broken.
Despite the slump in profits, sales aren't down by a large amount. They have dropped by only 1.3% to €2.7bn. The price of cotton however has risen by 140% in six months. The cost of crude oil is also rising, currently standing at over $100 per barrel, which is pushing up transportation costs and eating into profits.
The strength of the Swedish krona is also negatively impacting profit due to comparatively high prices for export goods. H&M has confirmed, however, that they will not be passing on these rising costs to consumers. The Stockholm based retailer, is choosing to take a hit on profits, as opposed to raising prices for valued customers.
Despite this set-back H&M has stood strong during a difficult time for the retail industry. Oddbins has recently announced it is going into administration, HMV is set to close 60 stores this year, and Mothercare and Laura Ashley have additionally reported profit slumps. H&M can be proud to report sales increases in certain countries, including England where sales have risen 14% to €222m. They will be looking to expand in the UK and intend to open 97 stores globally in the next year, hitting new countries including Singapore and Morocco as well as focusing on existing locations that are performing well such as China.
H&M has also recently launched an online store to provide for the growing demand in online shopping. Provideo Financial analysts believe this is an intelligent move for the fashion giants, with online retail cornering a large proportion of the market, H&M will have both sectors covered. In addition to this, H&M's sales in local currency have reportedly increased by 9% so once oil prices have relaxed and the market has evened out they will be in a great position to take control of the market.
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