H&M Experiences Slower-Than-Expected Sales Growth in Fiscal Q1

H&M, the Swedish fashion giant, reported weaker-than-anticipated sales for the fiscal first quarter, marking a slow start to the year for the world’s second-largest clothing retailer.

The company’s sales rose by 2% in local currencies, reaching 55.33 billion Swedish kronor ($5.5 billion) for the three months ending February 28. However, this was slightly below analysts’ forecast of 55.86 billion kronor.

Operating profit for the period totaled 1.2 billion kronor, significantly missing the expected 1.9 billion kronor, resulting in an operating margin of just 2.2%. H&M attributed this decline in profitability to several factors, including “negative external factors,” increased markdowns, and investments aimed at enhancing its customer offerings. These elements contributed to a drop in gross margins during the quarter.

Despite the weaker-than-expected results, H&M expressed confidence in the future. The company noted that the negative impacts on profitability were expected to be less significant in the second quarter, pointing to a 1% projected increase in sales for March. CEO Daniel Ervér acknowledged that while the first quarter was a difficult one, the company’s focus on strengthening its product offering, improving the shopping experience, and enhancing its brand will lead to long-term growth.

H&M’s challenges also come amidst heightened competition in the fast-fashion industry. The company has faced difficulties in narrowing the gap with its main rival, Inditex-owned Zara, while also contending with increasing competition from cost-effective retailers like Shein. This struggle for market share is compounded by a high inflation environment, which has limited consumer spending power.

Further, the retailer’s March sales showed a modest 1% increase in local currencies, a stark contrast to the 4% increase reported a year earlier. The company also observed weaker sales performance in the US, the Nordics, and the UK during the first quarter, although markets like Germany and Poland saw better results.

As part of its turnaround efforts, H&M has been ramping up marketing investments and collaborating with high-profile brand ambassadors, such as musicians Charli XCX, Tyla, and FKA Twigs, to appeal to a younger, fashion-conscious audience. The company has also been reducing its store footprint, reporting 4,213 locations globally—its smallest number since 2016.

With input from CNBC, Bloomberg, and Reuters.