By Anna Ringstrom

STOCKHOLM (Reuters) – Sweden’s H&M, the world’s second-biggest fashion retailer, is bracing for a loss in the first quarter after full-year profits plummeted due to COVID-19, sending its shares down almost 4%.

The retail industry is struggling to recover in the face of a second wave of the pandemic that has again shut many stores.

H&M’s pretax profit fell 88% in the 12 months through November to 2.05 billion crowns ($245 million) despite large cost cuts. In the final quarter, profit fell 32% year-on-year to 3.67 billion as sales shrank 10% in local currencies.

Restrictions, lockdowns and store closures pushed local-currency sales down 23% in the December to Jan. 27 period – worse than expected by analysts.

“Q1 is a small quarter … so with a drop of 23% or more in topline it’s very difficult to achieve profit in a quarter like that,” H&M head of investor relations Nils Vinge told analysts and journalists on a call.

More than a third of H&M’s around 5,000 stores worldwide are closed currently.

“It all depends on sales which is pretty uncertain as you know. The situation right now is quite severe,” CEO Helena Helmersson said on the call.

Online and in markets where stores remain open, collections were however well received, she noted.

H&M said costs for markdowns to shift unsold clothes such as winter jackets would rise somewhat in the current quarter after inventories were up slightly at the end of the year.

H&M’s shares were down 3.6% at 1116 GMT.

However, looking beyond the pandemic, some analysts see positives.

“H&M … has been gradually improving its offer which has led to an improved underlying (ex COVID-19) performance, which should in time be accompanied by an improved free cashflow trend,” said RBC analyst Richard Chamberlain who has a sector perform rating on the company.

H&M said its board would come back later with a proposed date and level for resuming dividends after none were paid for 2019.

Helmersson said H&M hadn’t decided yet whether to get state support in 2021 as it did in 2020.

Bigger rival Inditex, the owner of Zara, reports full-year results in March.

 

 

(Reporting by Anna Ringstrom; additional reporting by Colm Fulton; editing by Niklas Pollard, Jason Neely and Emelia Sithole-Matarise)