What's going on?

H&M reported on Friday that its profit took a nosedive last quarter.

What does this mean?

H&M is the world�s second-biggest clothing retailer, but that reputation probably wasn�t much consolation during last quarter�s hammering. For a start, getting goods in the door got more expensive, which wasn�t helped by the strong US dollar upping the cost of sourcing clothes. And good old H&M didn�t just offload those costs on customers: it swallowed some itself � which might have helped sales a little, but certainly hurt profit a lot. That�s not to mention the so-called �cost-cutting program� that�s actually increased costs in the short term. It all proved too much for H&M, still reeling after the war in Ukraine closed its profitable Russian business: the firm announced its operating profit fell a disastrous 87% from the same time the year before.

Why should I care?

For markets: Dress to unimpress.
H&M�s share price has dropped so far that it�s underperforming arch-rival Inditex by over 30% in the last year. And that�s no surprise: by one key profitability measure, H&M�s achieved about half of what Inditex has these past four years. One reason for that is that the Swedish retailer lacks Inditex�s manufacturing flexibility, winding up with piles of unwanted clothes it�s having to discount heavily to get out the door. So sure, H&M has some valiant self-improvement plans � like sourcing stock closer to home in order to cut shipping costs � but it could be a while before those measures bear fruit.

Zooming out: Lap of luxury.
Luxury giant LVMH doesn�t have to bother with plebeian tactics like �cutting costs�: just last week the super-luxe conglomerate � owner of big-name, big-price-tag brands like Louis Vuitton and Dior � announced that 2022 was a record success. And the company�s gearing up for more of the same in 2023: a fairly safe bet given that China, the world�s second-biggest luxury market, is about to regain its appetite.