H&M in the red after Russia exit, soaring costs

H&M reported Friday a big drop in profits in 2022, with a surprise loss in the fourth quarter as the Swedish fashion retailer exited Russia and faced soaring production costs.

H&M was among a slew of foreign companies that shipped out of Russia last year after Moscow invaded Ukraine and Western nations imposed sweeping sanctions on the country.

"Our decision to wind down the business in Russia, which was an important and profitable market, has had a significant negative impact on our results," chief executive Helena Helmersson said in a results statement.

The withdrawal from Russia and a cost-cutting programme cost H&M almost 2.6 billion Swedish kronor ($252 million) in 2022.

The world's second biggest fashion retailer after Zara owner Inditex was also hit by a historically strong dollar and increases in the costs of freight and raw materials.

"Rather than passing on the full cost to our customers, we chose to strengthen our market position further," Helmersson said.

H&M also dealt with higher energy prices, which soared across Europe following Russia's war in Ukraine, and the cost-cutting programme which included laying off of 1,500 employees worldwide.

The group, whose other brands include COS, Monki and Weekday, closed 336 stores worldwide, including 175 in Russia and Belarus.

H&M posted a 68 percent drop in net profit in 2022 to almost 3.6 billion kronor. Net sales rose 12 percent to 223.6 billion kronor, though they were only up six percent in local currencies.

The group reported a loss of 864 million kronor in the September-to-November period after analysts had forecast a net profit.

But the company is more upbeat about 2023, with sales up five percent in the December-January period.

"Sales in the new financial year have started well. The external factors are still challenging, but are moving in the right direction," Helmersson said.

She said the company's target of a double-digit operating margin for 2024 remains in place.

"Combined with our investments and efficiency improvements, there are very good prerequisites for 2023 to be a year of increased sales, and improved profitability," the CEO said.

H&M has faced a tough period since the Covid pandemic broke out.

It also endured a boycott in key market China in 2021 over its decision to cut links with the textile industry in Xinjiang, a region where the United States says Beijing is committing genocide against the mostly Muslim Uyghur minority.

Other challenges for the group include reducing the carbon footprint of its fast-fashion business model and the rise of low-cost competitors such as Chinese online retailer Shein.

H&M's profits have fallen steadily over the past decade, save for a rebound in 2021 after countries emerged from Covid restrictions.