By Anna Ringstrom

STOCKHOLM (Reuters) – Sweden’s H&M is seen swinging back to profit in its December-February quarter as pandemic effects ease, though the closure of its Russian stores and the economic fallout from war in Ukraine has made the company’s outlook more uncertain.

Refinitiv analysts polled on average expected the second-largest fashion retailer in the world to report a pretax profit (112.2 Million) for its first quarterly on Thursday.

Sales were up 23% year-on-year, H&M has reported, but down 11% from two years earlier, before the pandemic.

The year-ago period, when nearly half of stores closed due to the second wave of the pandemic, H&M made a 1.39 billion crown loss. H&M made a 2.50 Billion crown profit two years back.

Alongside many other companies reacting to Russia’s invasion of Ukraine in late February, H&M on March 2 said it would temporarily close its stores in Russia, expressing concerns about the “tragic developments in Ukraine”.

Some Russian companies have chosen to permanently leave Russia, including Carlsberg Brewers (OTC:), while the Kremlin threatens to seize company assets.

Russia was H&M’s sixth-biggest market with 4% of sales in the fourth quarter of 2021. The company is decreasing its total store count but has increased its Russian presence to 170 stores at the end November.

Analysts have been lowering full-year earnings estimates for H&M recently.

“For H&M we could see further downside risk to estimates if H&M decides to pull out of Russia/Ukraine permanently due to the conflict there, or this leads to further upwards pressure on inflation and commodity prices,” RBC analysts said in a note.

H&M’s sales halt in Russia follows a sharp drop in demand in China over the past year, related to concerns the group has expressed about workers’ rights in the Xinjiang cotton growing province. China had accounted for around 4% of H&M’s sales.

As recently as January H&M unveiled targets to double sales by 2030 and to reach an operating margin of 10% by 2024. It was 7.7% last year.

Market leader or competitor Inditex Zara owner (MC) saw sales rise 33% in 2018 and 21% in 2019 in just six weeks.

H&M’s shares are down 18% so far this year, while the European retail index is down 22%, and Inditex 26%.

($1 = 9.2720 Swedish Crowns