H&M Swings to Loss in Q1, Pledges to Rebuild Trust in China

H&M reported a quarterly loss on Wednesday and said that it was dedicated to regaining the trust of shoppers in China following a recent backlash there after comments it made last year the on the Xinjiang region.

The world’s second-biggest fashion retailer has come under fire from consumers and officials in China after an H&M statement from 2020 resurfaced on social media. In those comments, H&M had expressed concern over reports of forced labour in the western region of Xinjiang, saying it would no longer source cotton from there.

In a statement alongside quarterly results on Wednesday, H&M said that its commitment to China remained strong and it was dedicated to regaining the trust and confidence of customers, colleagues and business partners there.

“By working together with stakeholders and partners, we believe we can take steps in our joint efforts to develop the fashion industry, as well as serve our customers and act in a respectful way,” it said.

The latest statement made no specific mention of Xinjiang.

China is H&M’s fourth-biggest sales market and its biggest sourcing market.

“We have seen brands like Nike and H&M weather similar controversies in the past and maintain relatively strong sales, however short term we think H&M may see a negative impact on its sales in the large and growing Chinese market,” RBC Capital Markets analyst Richard Chamberlain said in a note.

Shares in H&M fell 2 percent in early trade.

With many of its shops closed because of the coronavirus pandemic, H&M reported a pretax loss for the December-February period, its fiscal first quarter, of 1.39 billion crowns ($159 million) against a year-earlier profit of 2.50 billion.

Analysts polled by Refinitiv had on average forecast a 1.41 billion crown loss.

Sales from March 1-28 were up 55 percent measured in local currencies.

H&M said it would not propose a dividend at its annual general meeting but saw good prospects of one in the second half of the year.

By Anna Ringstrom and Helena Soderpalm; Editing by Louise Heavens and Keith Weir.