H&M reported a disappointing start to the year on Thursday, with sales falling short of analyst expectations in the fiscal first quarter. The Swedish fashion retailer saw a 2% increase in local currency sales, reaching 55.33 billion Swedish krona ($5.5 billion) year-on-year in the three-month period ending Feb. 28, though this was slightly below the 55.86 billion forecast by LSEG analysts.
Profit Decline and Operating Margin Pressure
Operating profit for the quarter totaled 1.2 billion Swedish krona, well below the expected 1.9 billion, resulting in a weakened operating margin of just 2.2%. The company attributed this decline to a combination of “negative external factors, increased markdowns, and investments in the customer offering,” which adversely impacted gross margins.
Optimism for the Future
Despite the weaker-than-expected results, H&M remains optimistic about its future performance. The company anticipates a 1% annual increase in March sales, noting that the negative impacts from the quarter are expected to significantly decrease in the second quarter.
“Our sales and earnings in the quarter were somewhat weaker than planned, but the first quarter is the smallest of the year for us in terms of sales and margin. We are confident going forward,” said CEO Daniel Ervér.
Focus on Growth and Competition
Ervér, who took over as CEO in January 2024, emphasized the company’s focus on improving its product offering, enhancing the shopping experience, and strengthening its brand to ensure long-term, sustainable growth. H&M faces increasing competition from rivals like Inditex-owned Zara and low-cost fashion giant Shein.
The results mark another challenge for the retailer as it strives to regain momentum and close the gap with its competitors.
