(Bloomberg) — Hennes & Mauritz AB said burgeoning energy, freight and garment prices nearly wiped out the Swedish clothing retailer’s profit in the past quarter.
Operating income dropped 87% to 821 billion kronor ($80 million) in the three months through November, H&M said Friday, missing analysts’ estimates. The stock fell as much as 7.4%.
H&M’s exit from Russia and costs related to a plan to cut 1,500 jobs also weighed on profit. The fast-fashion giant is also still struggling with high inventory levels as its profitability lags that of rival Zara-owner Inditex.
The company said 3.6 billion kronor were lopped off from profit due to higher costs for energy, freight and garments, plus the effect of a strong dollar, the currency in which most clothes are sourced in.
Sales returned to growth in December and January, rising 5% during the key holiday period. However, the company warned that discounts are rising slightly in its first quarter, and purchasing conditions are still very negative, with prospects for improvement only later in the year. H&M said it decided not to pass on all the garment price inflation to consumers, which is also weighing of profitability.
Last month, the company reported that revenue was little changed in the fourth quarter excluding currency shifts as it ended operations in Russia and Belarus.
The company reiterated a target for a operating margin of more than 10% in fiscal 2024. In fiscal 2022, the margin dropped to 3.2%, less than half the year-earlier level.
“There are very good prerequisites for 2023 to be a year of increased sales and improved profitability,” Chief Executive Officer Helena Helmersson said in the statement.
(Updates with costs in second paragraph)