Middle East tensions pose risk to H&M profit growth
Robyn Duffy, Consumer Markets Senior Analyst at RSM UK, comments on H&M’s results: “Today’s news of a sales decline at H&M in Q1, highlights a continued challenge for the business to establish a clear market position. An attempt to bridge fashion credibility and value by competing with Zara on one side, and Primark and Shein on the other, has diluted the brands proposition, leaving it without a strong point of differentiation in an increasingly polarised market.
“Margin performance continues to benefit from full-price sell-through, tighter control on stock-in-trade, improved supply chain efficiency and disciplined cost control. However, escalating tensions in the Middle East and the potential impact on oil prices poses a risk to this progress as the year unfolds. With limited pricing power relative to peers, H&M may find it harder to pass on rising costs, putting the sustainability of recent margin gains under closer investor scrutiny.
“The signal for March sales is positive and the business’s supply chain and decision paths have improved off the back of the last energy shock. However, everything will depend on how long the Iran conflict lasts. The past tells us that consumers tend to have a delayed reaction to energy shocks, and the hit to spend comes later down the line.”