H&M Heads into Winter with a Sharper New Look -- Heard on the Street
01 October 2020 - 1:23PM
Dow Jones News
By Carol Ryan
Global fashion retailers face a potentially harsh winter, but at
least they aren't wasting the crisis.
Shares in Swedish clothing chain Hennes & Mauritz rose 8% in
morning trading Thursday after it reported good news about
September sales. Revenue was 5% lower in the month compared with a
year ago -- a sharp recovery from the 16% year-over-year drop for
the three months through August that the company announced a few
weeks ago.
H&M also beat earnings expectations for the summer quarter.
The business made a pretax profit of 2.4 billion Swedish krona, or
roughly $260 million, while analysts had thought it would barely
break even. The same thing happened at Zara-owner Inditex, the
world's largest clothing retailer by market value, and fast-fashion
chain Primark, that both reported better-than-expected summer
profit.
Global clothing brands have done a good job of controlling what
they could during the pandemic. Despite widespread store closures
in the spring, H&M ended August with the same amount of stock
that it held a year earlier. Inditex, which has an especially
flexible supply chain, is carrying one-fifth less. Having stores in
Asia, where the pandemic first appeared, undoubtedly gave them more
insight into what was coming next than regional retailers in Europe
and the U.S. "They canceled orders early on and then were cautious
about new ordering. So there has been less discounting and stock
levels are better than expected," said Aneesha Sherman of brokerage
Bernstein.
The crisis has handed retailers leverage with landlords too.
H&M negotiated rent cuts of up to 30% in certain markets and
plans to close 5% of its stores in 2021 as it reverses decades of
expansion. Inditex will shrink its physical network by a more
dramatic 12% over the next two years as more sales move online.
There are still issues to be fixed. H&M offers a
"click-and-collect" service, where customers order online and pick
up in store, in just 14 of the 70-plus markets it operates in.
Rolling this out quickly is a priority. Overall, though, the
Swedish company seems to have vastly improved its operating
flexibility, bringing it more in line with best-in-class
Inditex.
With case numbers rising in Europe and the U.S., investors need
to worry about the risk of a relapse in the consumer recovery.
Against this backdrop, it is reassuring that Europe's global
fashion chains have found a sharper look.
Write to Carol Ryan at carol.ryan@wsj.com
(END) Dow Jones Newswires
October 01, 2020 08:08 ET (12:08 GMT)
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