H&M sees second-quarter loss as pandemic slams sales in March

STOCKHOLM (Reuters) – H&M (HMb.ST), the world’s second-biggest clothing retailer, said on Friday it expected a loss in the second quarter after reporting a 46% plunge in March sales as the coronavirus pandemic took a toll on the retail sector.

The virus outbreak that began in China late last year has spread around the world, prompting governments to close businesses and order hundreds of millions of people to stay at home to try to slow the contagion..

The pandemic has forced H&M to temporarily close most of its stores, flag big layoffs and scrap its annual dividend for the first time since its 1974 listing. In the past month alone, H&M’s shares have plunged 40%.

“With the dramatic decline in the market we have to make many difficult decisions and take forceful action,” newly appointed Chief Executive Helena Helmersson said in a statement.

“With each day that we are having to keep stores closed, the situation is becoming increasingly demanding.”

The retailer, which had more than 125,000 employees by late last year, has already said it was in talks to reduce working hours for tens of thousands of its staff and was reviewing the need for redundancies.

H&M said on Friday it had prepared a number of sources of financing to strengthen its liquidity buffer which it expected to be finalised in the second quarter.

OUT OTHER SIDE

Analysts at Jefferies said it was sensible to expand credit facilities “given narrower liquidity buffers relative to peers, as we entered an elongated period of demand weakness/absence”.

In results that still bore little mark of the virus outbreak, H&M’s fiscal first-quarter pretax profit more than doubled to 2.50 billion crowns ($247.6 million) from a year-ago 1.04 billion. Six analysts polled between March 17 and March 26 had on average expected a rise to 1.47 billion crowns, according to Refinitiv data.

With an unprecedented fall in sales and a dismal second quarter already priced in, H&M shares were up 6% by 0828 GMT, buoyed by the forecast-beating earnings for the quarter through February and its plans to slash costs.

“We think the debate on H&M will be between investors looking at how ugly it can get short term and investors thinking about who could come out the other side relatively stronger,” RBC analyst Richard Chamberlain said in a note.

“H&M should be one of those, albeit Inditex looks better placed for now given its flexible business model and stronger balance sheet,” he said.

H&M’s biggest rival, Zara owner Inditex (ITX.MC), has flagged big temporary layoffs, booked a provision against the outbreak’s impact on inventory, and postponed its dividend.