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Riku Tanaka
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April 3 22:22

H&M expects Q2 losses as pandemic destroys March sales figures

"With the dramatic decline in the market we have to make many difficult decisions"
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The world's second-biggest clothing retailer, H&M reported today (Apr 3) that the company expects a heavy losses in Q2 2020 following the announcement of a huge 46% sales dive in March as the coronavirus crisis pummeled the retail industry. 
The viral pandemic that started in China in December of 2019 has spread throughout the entire globe, provoking governments to close down non-essential companies and request countless citizens to remain at home in hopes of slowing the spread of the virus. 

The emergency measures taken by officials had mandated H&M, like many other retailers, to temporarily close a large portion of its stores, which prompted the company to enact enormous cutbacks and cancel its yearly dividend for the very first time since it was publicly listed 46 years ago. In the previous month alone, H&M's shares have plummeted by 40% in value. 
"With the dramatic decline in the market we have to make many difficult decisions and take forceful action.With each day that we are having to keep stores closed, the situation is becoming increasingly demanding,"

- Helena Helmersson, H&M CEO
The retail behemoth, which had in excess of 125,000 people in its employ when 2019 was coming to a close, has also reported that the company was making plans to shorten working hours for tens of thousands workers and was looking into the requirement for redundancies. 
H&M also said today (Apr 3) that it had arranged various sources of financing in order to fortify its liquidity cushion, which should be inked in Q2. 
Analysts at Jefferies had commented that it was reasonable to expand credit facilities "given narrower liquidity buffers relative to peers, as we entered an elongated period of demand weakness/absence".
In the reported results that had yet to show the economic impact of the coronavirus, H&M's financial Q1 pretax profit had dramatically increased to 2.50 billion Swedish krona (US$247.6 million) from the 1.04 billion krona in the same period last year. According to Refinitiv data, six financial analysts that were surveyed between March 17th and March 26th had anticipated that the growth to be an average of 1.47 billion krona. 
With the extraordinary plunge in sales and a grim second quarter estimate, H&M shares were up 6% (08:28 GMT), likely floated by the estimate-beating profits for Q1 as well as its plans to cut expenses. 
"We think the debate on H&M will be between investors looking at how ugly it can get short term and investors thinking about who could come out the other side relatively stronger," RBC analyst Richard Chamberlain said in a note.
"H&M should be one of those, albeit Inditex looks better placed for now given its flexible business model and stronger balance sheet," he said. 
H&M's closest competitor, Zara proprietor Inditex, has also signaled a large number of transitory layoffs, slated provisions against the COVID-19 crisis’ effect on stock, and deferred its dividend.