Pandemic pushes H&M into first loss in decades

H&M, the world's second-biggest fashion retailer, suffered its first loss in decades in the second quarter and said it would accelerate store closures, although trade has revived as lockdowns ease.

H&M logo is seen on a shop in Riga, Latvia January 30, 2020. REUTERS/Ints Kalnins

Restrictions to contain the novel coronavirus shuttered stores across the world and piled pressure on fashion giants such as H&M and its main rival and world leader, Zara owner Inditex.

H&M, which in April flagged it expected a second quarter loss, said on Friday it had increased price cuts that squeezed margins, and warned of further markdowns.

It reported a pre-tax loss of 6.5 billion crowns (£559.4 million) against a year-earlier profit of 5.9 billion. Analysts on average forecast a 6.4 billion crown loss, Refinitiv data showed.

H&M shares traded 3 percent lower in mid-morning trade, taking the year-to-date fall to 26 percent, as analysts anticipated sales recovery would be gradual.

As the coronavirus kept shoppers at home and eroded spending power, fashion sales dwindled.

So far in June, H&M sales were down 25 percent in local currencies and earlier this month, the company reported a 50 percent drop in second-quarter sales.

H&M said 7 percent of its more than 5,000 stores remained temporarily shut against around 80 percent at the height of lockdowns.

It said it would accelerate closures and open fewer new stores this year than previously planned.

Chief Executive Helena Helmersson said there was a surplus of spring products across the industry and she expected deeper markdowns in the third quarter, but sales were reviving.

"Our pace of recovery varies greatly between markets, partly because local restrictions differ, but has so far been better than expected," Helmersson said in a statement.

H&M, which has been fighting to end a years-long rise in inventories, slightly reduced stocks in the second quarter.

"Overall, while Q2 is no doubt a dire quarter, we think H&M continued to manage well what they could directly influence," analysts at JPMorgan, which rates H&M 'underweight', said in a research note.