H&M Group trails Inditex as the pandemic erodes its sales’ improvement in H1FY21

H&M’s (HMb.ST) sales grew less than expected from a year ago in the three months through August, and remained lodged below pre-pandemic levels. The company reported sales of £4.7billion at H&M in the three months to the end of August were down 11 per cent on the pre-Covid equivalent two years earlier.

Indeed, H&M Group’s growth was slower than before the pandemic started, with sales coming in well below 2019 levels in the third quarter. While H&M returned to profit in its April-June quarter from losses a year earlier due to the pandemic, sales slowed towards the end of the quarter.

The Swedish apparel group blamed it on Covid-related lockdowns and restrictions, saying those hampered its development, particularly in Asia. The parent company to namesake brand and Cos and Monki chains, said 100 stores were temporarily closed at the end of Augus: “Lockdowns and restrictions have continued to hamper development, particularly in Asia. As restrictions have been eased, sales in store have picked up in many markets while online sales have continued to increase.”

H&M’s pays for its criticism towards the Chinese Government

Analysts predict continued recovery for H&M as restrictions further ease. “In several markets where there are no restrictions, H&M is experiencing a positive sales development versus 2019, which gives management confidence in recovery as restrictions are lifted elsewhere,” pointed out Berenberg analysts said in a recent note.

The company’s sales increased by 9 percent, to 55,585 million Swedish crowns (about 5,437 million euros at the current exchange rate), which came below the consensus forecast of 57,361 million Swedish crowns (5,647 million euros). The group will publish the full results on September 30.

For Bankinter analysts, sales show a significant recovery, but “they are still 11 percent below those of the third quarter of 2019”, before the pandemic. They further said that “they continue to be affected by the impact of the Delta variant, which has dampened performance in some key markets, such as Germany, during the summer, as well as the drop in sales in China following the veto of Chinese consumers and the temporary closure of sales on the Alibaba and JD.com platforms in June”.

In this sense, “H & M’s criticisms, calling the labor practices in the Xingiang cotton region abusive, have led to a temporary boycott of the group’s products in China.”

Inevitable comparisons: H&M lags behind Inditex

As the two world’s largest fashion groups unveiled quarterly sales figures on Wednesday, analysts said Zara’s owner has showed a recovery in the quarter ended in August, getting a boost from strong performance in Spain and better sales in China, where H&M has taken a hit since it expressed concerns about alleged human rights abuses in the Xinjiang region.

“We expect Inditex to have shown the stronger sales performance over the summer, helped by its more premium positioning, fashion offer and better performance in China. However H&M’s margin and cashflow development should be strong,” RBC analyst Richard Chamberlain said.

Shipping container shortages and various challenges in the global supply chain have led to delays and raised shipping costs. “Neither will be immune to it, but for the rest of this year, the currency (a weaker US dollar) should more than offset the impact of higher raw material and freight costs on margins, while both companies they are strong in ensuring an adequate supply of inventory, “RBC’s Richard Chamberlain said.

Image: TOGA Archives X H&M, H&M Official Web