H&M to cut costs by £160m as it takes hit from inflation and Russia exit

Retail giant H&M has revealed plans to cut costs by £160 million as it blamed its exit from Russia and soaring inflation for plunging profits.

The Swedish fashion and homewares chain plans to implement a cost-saving programme from the second half of 2023 worth around two billion Swedish krona (£160 million).

The company posted pre-tax profits of 689 million krona (£56 million) for the third quarter, plummeting from the 6.1 billion krona (£500 million) reported in the same period last year.

Exiting Russia explains half of this decline in profits, while “many other external challenges also made their mark on the quarter”, bosses said.

This includes higher raw materials and freight prices, supply delays and a stronger US dollar resulting in cost increases for buying American goods.

It also took a hit from higher energy prices and increased costs from customer deliveries.

H&M paused all sales in Russia soon after the war in Ukraine commenced in March, before selling off the last of its stock in July in order to fully wind down the business.

Shutting shop in Russia, where it had about 6,000 employees, cost the retailer 2.1 billion Swedish krona (£170 million), it revealed on Thursday.

Furthermore, its gross margin was 49%, meaning it retained about half of the revenue it generated during the latest quarter.

But its sales were up by 3% compared with the same three months in 2021, and jumped by 13% in the first nine months of the year.

H&M’s chief executive Helena Helmersson said sales growth provides “important proof” that the group is growing “even when customers’ purchasing power is decreasing”.

Rising inflation has eaten away at household’s disposable incomes which many retailers have blamed for declining sales in recent months.

The UK’s inflation rate was 9.9% in August and is expected to hit 13% later this year, the Bank of England has warned.

Ms Helmersson added: “In common with the rest of the industry, sales were weak in many of our major markets at the start of the period.

“Sales then gradually improved, despite a heatwave in several European countries and some remaining delays in the supply of goods.

“Increased raw materials and freight prices as well as a stronger US dollar resulted in substantial cost increases for purchases of goods.

“We have chosen not to fully compensate for the increased costs, which is reflected in the gross margin.

“Overall, these factors had a substantial negative impact on profit for the quarter.

Victoria Scholar, head of investment at Interactive Investor said: “Sky-high inflation, squeezed household budgets, sliding consumer confidence and one-off costs from exiting Russia have created a perfect storm for H&M’s profitability which fell sharply along with margins.”