H&M Group (Financials)
Financial overview
- Group sales rose 5.6% to SEK 236.0bn (£17.94bn) for the year ending 30 November 2023 (FY2023)
- Profits rose at both operating and pre-tax levels as the retailer continues its cost and efficiency programme
- UK sales are yet to be reported for FY2023
Group financial analysis
H&M Group saw its sales climb 5.6% to SEK 236.0bn (£17.94bn) for the year ending 30 November 2023 (FY2023). Sales excluding Russia and Belarus rose 8% on a reported basis.
H&M had seen its sales disrupted in the fourth quarter of FY2023 as unusually hot weather impacted its European markets. From October, more normalised weather saw collections “well received”.
Commenting on its results, outgoing H&M chief executive Helena Helmersson said “For many consumers the year was marked by lower purchasing power because of high inflation and high interest rates. Despite this, our net sales in comparable markets increased in relation to 2022”.
H&M said sales of its portfolio brands had risen 15% in the year, with sales at Cos, Arket and Weekday developing “particularly strongly” over the year, contributing “more and more” to the group’s profitability.
Group sales had jumped 12.4% in FY2022 to SEK 223.6bn (£17.9bn) despite its exit from Russia, off the back of a 6.4% sales rise in FY2021.
H&M has historically been one of the most profitable fashion retailers. However, profit margins have come under pressure in recent years.
Pre-tax profits had declined to SEK 6.2bn (498.7m) in FY2022 with a pre-tax margin of 2.8%.
Yet group profitability stabilised in the latest financial year with operating margins rising from 3.2% to 6.2%. H&M said strong gross margins, its cost and efficiency programme, and “good operational cost control” all had a positive impact on operating profit.
Pre-tax margins also climbed year-on-year in FY2023 from 2.8% to 5.6%, with pre-tax profits of SEK 13.2bn (£1.0bn).
In FY2022, H&M’s operating profits had been hit by one-time costs of SEK 2.59bn (£208m) for the winding down of its Russian operations and for the cost and efficiency programme.
H&M is targeting operating profit margins to exceed 10% “over time”, with the ambition “still to achieve this” in 2024.
UK financial analysis
H&M has yet to file its UK results at Companies House for FY2023, with these tending to lag the group. UK sales for FY2023 are therefore Retail Navigator estimates.
UK sales climbed 19% to £996m in the year to 30 November 2022 (FY2022) with retail sales jumping 23% to £753m. UK filings do not include online revenues which are currently made by another H&M entity, from 2023 these transactions will be made by H&M UK with UK results boosted.
UK subsidiary accounts saw H&M deliver UK revenues of £835m in FY2021, with UK retail sales rising 19.9% to £610m.
* This chart data is for the UK subsidiary filed with Companies House, not overall UK sales from the H&M Group Annual Report, and includes Retail Navigator estimates and forecasts
H&M revealed in its annual reports that UK revenues had totalled SEK 16.3bn (£1.3bn) in FY2022, remaining the group’s third largest market.
H&M has been one of the world’s most profitable retailers but achieves only modest margins in the UK. This is mainly due to the accounting differences implemented a decade ago, which creates differences in stock values across individual markets, before which it had reported double-digit margins.
Pre-tax profits had come under continual pressure in its UK subsidiary, falling into a loss of £62.9m in FY2020.
Yet in FY2021, the retailer returned to the black, delivering pre-tax profits of £99.7m. It entered into rent renegotiations with landlords resulting in a £3.87m saving. It also claimed £20.5m in government support schemes relating to the pandemic.
Pre-tax profits slimmed to £14.4m in FY2022 which the retailer attributed to rising costs due to inflation and the termination of pandemic related concessions and grant. It also noted the adjustment of transfer pricing margin drove £4.75m of the fall.
Ecommerce sales performance
H&M said group online share sat at around 30% in FY2023. Retail Navigator estimates this to equate to around £5.38bn, falling some 1.6% on the previous year.
Group online sales for FY2022 had remained broadly flat year on year at around £5.5bn, with the retailer stating that around 30% of sales were online and that this was the same level as last year, when it had represented 32% of total revenue.
Online growth at H&M should continue to be supported by several customer-facing ecommerce initiatives such as the continued roll out of click-and-collect, next-day delivery, in-store online returns and Scan and Buy, which allows shoppers to scan products in-store to order for home delivery.
Employees
H&M saw its employee numbers fall in the latest financial year to 101,103 FTEs. The retailer said “The company’s continuous development includes advancing digitalisation, utilising new technologies, secure right competence, simplifying the organisational structure and establishing more efficient ways of working.”
Store numbers also fell year on year from 4,465 to 4,369 in FY2023, which will have contributed to the decline in employee numbers.
H&M had employed more than 106,500 FTE staff during the 2022 financial year, which was broadly flat (-0.8%) on the previous year.
Talking about a reduction in headcount in the 2020 financial year, and again in 2021, the group said that the greatest reduction in employee numbers was because of the expiry of temporary contracts, probationary employment that ended and natural attrition.
Group sales per employee reached their highest level in 10-years at £177,425 in FY2023, having grown consecutively over FY2021 and FY2022 (£157,000 and £168,380 respectively).
UK sales per employee have also been on an upwards trajectory, rising from £140,000 in FY2021 to around £178,165 in FY2022.
H&M does not reveal its group employee costs, but UK staff costs to sales ratios have slimmed from its bloated 20.5% in FY2020 to 14.5% by FY2022.
Current year
Q1
H&M posted a 2.1% dip in sales to SEK 53.7bn (£4.1bn) in its first quarter to end February 2024 (FY2024). Despite the decline in sales, group profitability surged as the fashion retailer continued its focus on cost efficiencies.
Gross margins climbed from 47.2% the previous year to 51.5% with gross profits rising 7% to SEK 27.7bn (£2.1bn). Operating margins were bolstered, rising from 1.3% to 3.9% with the group posting operating profits of SEK 2.1bn (£0.2bn).
H&M chief executive Daniel Ervér commented: “We have a fantastic position with billions of visits a year to our physical and digital stores. We have more than 200 million customers in our loyalty programme, in a global market that external market analysts expect to grow by more than 5 percent a year up to 2028. With our long-term and high ambitions for a sustainable fashion industry, I am pleased and humbled to be entrusted with leading the H&M group.
“In the first quarter we continued to take steps in the right direction, with a gross margin of 51.5 percent, a substantial improvement in operating profit to SEK 2.1 billion, inventory down by 7 percent and continued strong cash flow. Through continued cost control, better precision in our collections and close cooperation with our suppliers, we now stand better equipped.”
“We are fully focused on driving profitable growth going forward. Our stronger gross margin enables us to enhance the customer offering further and provide more value for money through improved quality and better prices. We are strengthening all parts of our assortment and our design organisation’s most important mission is to create attractive collections. The upgrading of our stores is being accelerated, for added inspiration and relevance to customers. We are refurbishing around 250 stores globally in 2024, including in New York, London, Berlin and Stockholm. As we reported previously, we are also continuing to simplify our organisation to make it more efficient and faster. Other examples of ongoing improvements include increased nearshoring and enhanced efforts in digitalisation and AI, enabling customers to access the most relevant fashion each time they meet with us. The quarter’s sales gradually improved during February with well-received Spring collections, which is a positive sign that we are on the right track.”
H&M said revenues in the period 1 to 25 March 2024 had improved, rising 2% in local currencies versus the year prior.
Forecast
The H&M group’s target is to increase sales by 10 to 15% per year with continued high profitability remains a long-term target.
Retail Navigator estimates that facing into tough global economic factors, H&M’s sales growth will remain in the single digits to FY2028, with total revenue reaching around £23.9bn in the year.
