The latest fast-fashion store to feel the pinch as consumers cut back was H&M (HMb.ST), which reported on Friday that rising expenses had reduced its earnings. Meanwhile, LVMH and Salvatore Ferragamo revealed the harm that China’s COVID-19 restrictions had done to luxury sales.
The stock of H&M, the second-largest fashion retailer in the world, dropped as much as 6% in the early going after the company’s operating profit for the third quarter dropped from $6.26 billion to $821 million ($79.7 million) from a year earlier. That was significantly less than the mean projection of 3.67 billion crowns in an analyst survey by Refinitiv.
The findings brought to light the difficulty faced by fashion merchants who must deal with rising costs for shipping, energy, and fabrics at the same time that consumers are becoming more choosy about the products they purchase due to rising food, energy, and rent prices.
CEO Helena Helmersson said in a statement that “we chose to improve our market position further rather than pass on the full cost to our clients.”
In order to reduce expenses by 2 billion crowns annually, H&M initiated a campaign last year. Savings from layoffs and other initiatives are anticipated to begin to appear in the second half of 2023.
However, it has found it difficult to compete with Inditex (ITX.MC), a larger rival, whose flagship brand Zara aggressively increased prices last year without alienating customers.
Due to selling more expensive clothing and luring customers who could have otherwise spent money at upscale retailers, Zara has beaten competitors.
On Friday, British clothing retailer Superdry (SDRY.L) lowered its profit projection for this year due to weak wholesale sales. At 13:16 GMT, its shares had decreased by more than 18%.
Primark, a clothing company, issued a warning earlier this week that this year’s customer spending may be affected by economic challenges.
The results marked the end of the first week of the fourth-quarter corporate earnings season, and while data have given rise to optimism for a soft economic landing in 2023, expectations have dimmed even further as a result.
Results in the United States have not all been positive. Intel (INTC.O) surprised the market late on Thursday with a revenue guidance that fell nearly $3 billion short of Wall Street expectations.
Even so, advances in stocks have been fueled by China’s reopening after three years of zero-COVID policies and the fact that Europe was able to keep its lights on during the winter.
For its strongest January since 2015, the pan-European STOXX index (.STOXX) is anticipated to increase by more than 6% this month.
The newsflow does seem to have changed, with more companies missing than beating EPS expectations for the first time in many quarters, Morgan Stanley equity strategist Graham Secker said on Friday. “While it is very early in Europe’s reporting season, the newsflow does appear to have taken a turn down,” he added.
According to data, experts have been lowering their earnings projections for European corporations at their highest rate since July 2020 this week.
The world’s largest luxury business (LVMH.PA), at the other end of the fast-fashion spectrum, saw organic sales growth fall to 9% from 20% in the first nine months of the year.
That was because lockdowns in China had a negative impact and the country later abandoned its zero-COVID policy, which caused an increase in infections in the second-largest economy in the world.
Beijing authorities loosened travel restrictions in December, which caused issues for LVMH in its distribution networks, stores, and warehouses, even though the business said that since the year’s beginning, things had much improved.
Simply put, everyone was sick, according to LVMH’s finance boss Jean-Jacques Guiony.
The most valuable publicly traded business in Europe, LVMH is the owner of numerous luxury brands, including the fashion houses Louis Vuitton and Dior.
A record-breaking run in LVMH shares was momentarily put to a halt on Friday due to disappointment over the effect of the China disruptions on its profits. The stock price fell by 0.65%.
The information confirmed what Richemont (CFR.S) and Burberry (BRBY.L) announced last week.
Nevertheless, it is anticipated that the luxury sector will benefit greatly from the relaxation of regulations that for months prevented Chinese consumers from entering establishments.
Salvatore Ferragamo, an Italian luxury goods company (SFER.MI), reported a 5.7% increase in sales at constant exchange rates last year but attributed a slowdown in the fourth quarter to COVID limitations in China.
Remy Cointreau (RCOP.PA), on the other hand, indicated that it anticipated the U.S. cognac market to decline well into 2023. The forecast followed the French distiller of spirits reporting decreased third-quarter revenues as the beneficial benefits of the coronavirus outbreak faded.
That echoed remarks made by Diageo (DGE.L), the biggest producer of spirits in the world, who signaled on Thursday that strong demand for its products as individuals created cocktails at home during lockdowns may be declining in some markets, especially in North America.