Next warning, H&M cuts add to European retail woe as prices soar

NEXT and Hennes & Mauritz (H&M) reports added to gloom from European retailers as inflation simultaneously makes clothing more expensive and reduces consumer purchasing power.

Next issued its second profit warning this year on Thursday (Sep 29). H&M said it will cut costs by 2 billion Swedish kronor (S$254.5 million) annually after its exit from Russia, and higher garment and transport costs caused third-quarter earnings to slump 86 per cent.

Retailers are suffering a drop in demand as customers cut expenses as energy and petrol bills mount. Meanwhile, the strength of the US dollar is making clothes more expensive to source, noted H&M. Next said pressure from the highest inflation in 4 decades will rise into next year, aggravated by the recent slump in the pound’s value. 

Next shares fell as much as 10 per cent after the report, while H&M’s 7.2 per cent decline brought the stock close to an 18-year low. Other European retailers also dropped, with online vendor Zalando down as much as 5.6 per cent and Marks & Spencer Group falling 5.6 per cent.

H&M chief executive officer Helena Helmersson, who started off the year by setting an ambitious goal of doubling sales by 2030, has been struggling recently to generate revenue growth even as rival Zara-owner Inditex zips ahead. 

The retailer said markdowns had increased somewhat in the quarter, which also cut into profit.

Next, seen as a bellwether for the health of Britain’s main streets, cut guidance earlier this year before raising its outlook last month. 

“With so many variables at play, predicting near-term sales trends is unusually difficult,” chief executive officer Simon Wolfson wrote. “All the more so with recent government stimulus measures yet to take full effect.”

The British clothing and housewares chain said that profit for the year will total £840 million (S$1.3 billion), compared with previous guidance of £860 million. Full-price sales in the second half are expected to drop 1.5 per cent rather than climb 1 per cent.  

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