Fashion Retailer H&M Reports Modest Sales Growth In Q1, Faces Margin Pressures

Swedish fashion retailer Hennes & Mauritz AB HNNMY HMRZF reported a 3% increase in net sales for the first quarter of its fiscal year, reaching 55.3 billion Swedish Krona ($5.1 billion).

The growth in local currencies was 2%, influenced by a 3% reduction in store count compared to the previous year.

Despite challenges, the company noted strong sales momentum in Western, Southern, and Eastern Europe, with Germany and Poland performing particularly well.

Gross profit for the quarter amounted to SEK 27.2 billion, with a gross margin of 49.1%, down from 51.5% in the same period last year.

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The decline was attributed to external economic pressures, increased markdowns, and a strengthened Swedish krona, which negatively affected currency remeasurement.

H&M also cited extended transport delays in the Red Sea continued to affect inventory.

The company’s operating profit stood at SEK 1.2 billion, significantly lower than the SEK 2.1 billion reported a year earlier.

This translated to an operating margin of 2.2%, compared to 3.9% previously. Higher purchasing costs and logistical challenges further pressured profitability.

Online sales contributed around 30% of total revenue, underscoring H&M’s digital expansion efforts. Meanwhile, the company continued optimizing its physical retail footprint, with a net reduction of 40 stores in the quarter.

As of February 28, cash and cash equivalents amounted to SEK 16.5 billion. The operating cash flow for the quarter was SEK 4.2 billion, a 6% increase.

“Although we have made important progress in our plan and have good cost control, our sales and earnings in the quarter were somewhat weaker than planned – but the first quarter is the smallest quarter of the year for us in terms of sales and margin, and we are confident going forward,” said CEO Daniel Ervér.

The group plans to open approximately 80 new stores in 2025, with a focus on emerging markets, while closing around 190 locations, mainly in established regions.

H&M is set to launch its first store in El Salvador in 2025, while its Brazilian entry will include locations in São Paulo and Campinas.

Paraguay will also become a new market for the retailer in 2026. Additionally, the company’s brands, such as COS and Arket, are expanding in South Korea, Norway, Austria, Greece, and Ireland.

Price Action: HNNMY shares closed lower by 3.01% at $2.58 on Wednesday.

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