H&M Targets 10% Operating Margin in 2024 Amid Falling Sales

Summary

  • H&M aspires to attain a 10% operating margin by the end of 2024.
  • The retailer, confronted by declining sales, emphasizes cost-cutting measures.
  • Investors want to see a clear path to the margin goal amid fluctuating consumer demand.
  • H&M and Primark are identified as the most vulnerable retail brands due to their reliance on Asian sourcing and sea freight.
  • Modifying its pricing strategy could be a potential move for H&M in its quest for margin improvement.
  • H&M is in the process of closing stores and reducing its workforce, with a specific plan to close over a fifth of its stores in Spain.

H&M’s Financial Goals

H&M netted over $22 billion in clothing and accessories sales during its 2023 fiscal year. The fashion powerhouse, with more than 4,300 stores worldwide, seeks to achieve a 10% operating margin by 2024’s end.

Dealing with Falling Sales

Combatting dwindling sales, H&M is emphasizing cost reductions, prioritizing profitability above earnings. Investors eagerly anticipate full-year results, with hopes of a clear path to the proposed margin goal amidst fluctuating consumer demand.

Operating Margin Improvement

H&M’s operating margin saw an upturn to 5.9% at 2023’s third quarter-end, a leap from 3.9% the year before. Nonetheless, the real test lies in maintaining this upward margin trend amid several apparel retailers indicating price cuts.

Elements of Pricing & Affordability

Specializing in affordable fashion such as $15 dresses and $19.99 jeans, H&M may revise its pricing strategy this year to meet its margin target, according to SEB analyst Andreas Lundberg. “Price mix will become more important,” he said.

Fewer Volumes in Future

Lundberg noted the high costs of handling large volumes in warehouses and stores. Anticipating a shift towards fewer volumes, Lundberg emphasized the importance of profitability over quantity.

Impact on the Clothing Industry

As sourcing costs decrease, budget fashion retailer Primark also aims to restore its adjusted operating profit margin above 10% by absorbing increased shipping rates due to the Red Sea’s disruptions. The key focus of investors will be H&M’s inventory amount. Effective monitoring of this can give signals to the trading community and possibly impact forex dynamics.

This could have an impact on the foreign exchange or trading markets, particularly in the retail and fashion industry related assets.

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