H&M swings to a £561.94 million loss as COVID-19 shuts stores in the second quarter

H&M (ETR: HMSB) revealed on Friday to have swung to a sharp loss in the second quarter as the Coronavirus pandemic pushed its stores into temporarily shutting down in 2020. The company expressed confidence that its business has recovered faster than expected in recent weeks as governments start to ease COVID-19 restrictions. But the outlook at large, H&M added, remains uncertain.

Shares of the company tanked less than 5% on Friday. At £12.09 per share, H&M is currently more than 25% down year to date in the stock market after recovering from an even lower £9.16 per share in March. Learn more about why prices rise and fall in the stock market.  

H&M refrains from giving financial guidance for Q3

According to a spokesman for H&M, the quarterly loss marks the first for the fashion retailer in decades. The Swedish multinational reported £561.94 million of pre-tax loss in the recent quarter that came in lower than the experts’ forecast. In the same quarter last year, the company had recorded £510 million profit.

Owing to the rising COVID-19 uncertainty, H&M refrained from giving financial guidance for the fiscal third quarter.

The world’s second-largest fashion retailer saw a 50% year over year decline in Q2 sales. In comparison, sales were down by only 25% in June. Digital sales, on the other hand, came in 32% higher in the second quarter.

H&M also highlighted that the ongoing health crisis resulted in a significant contraction in its margins in the second quarter. As per Citigroup, the fashion retailer’s gross margin tanked 900 basis points in Q2 on a year over year basis. In Q3, therefore, broader price cuts are now expected.  

H&M to launch its first outlet store in Israel

The Stockholm-based company has been struggling with rising inventories for years. In the second quarter, H&M boasted to have slightly reduced stocks. In a bid to shore up finances, the retailer plans on closing a few of its stores permanently and minimising the launch of new stores this year.

At the peak of COVID-19, H&M closed about 80% of its worldwide stores versus only 7% as of Friday. The retailer recently revealed plans of launching its first outlet store in Israel.

H&M performed largely upbeat in the stock market last year with an annual gain of a little under 50%. At the time of writing, the Swedish clothing retail company has a market cap of £17.63 billion and a price to earnings ratio of 15.85.