H&M’s Latest Look Is Hard on Investors

Heavy investment in technology at the Swedish clothing retailer won’t match well with lower growth in Europe and China.

By guest author Carol Ryan from the Wall Street Journal.

H&M’s HM.B +2.54% scanty profit shows the high price of investing for growth. Now, a costlier supply chain, weaker consumer demand and war in Ukraine all threaten returns on that cash.

Shares in the Swedish fast-fashion chain fell 10 % in European morning trading after it reported a pretax profit for the three months through February that was less than half what analysts expected. After several years of spending heavily on e-commerce technology to catch up with Zara’s Spanish owner Inditex, H&M still needs to invest more in its supply chain and sustainability initiatives.

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This would be more manageable if consumer spending were strong. However, after increasing sales 18% year-over-year in the three months through February, growth slowed to 6% in March. This may be an early sign that shoppers are cutting back on fashion purchases as inflation hits disposable incomes.

True, H&M stopped selling its goods in Russia, Belarus and Ukraine because of the war. Russia was one of the company’s fastest-growing markets and generated 4% of group sales. But sales slowed markedly in March even stripping out the conflict’s impact.

H&M wants to double revenues by 2030, which means growing by 10% to 15% a year. Demand in China still hasn’t recovered, a year after Chinese consumers boycotted the Swedish company for committing not to source cotton from Xinjiang. A weakening economy in Europe will make H&M’s expansion plans an even trickier fit.