Shares of Swedish fashion giant H&M fell over 5% on Thursday after the company reported fourth-quarter sales below analysts’ expectations, despite showing improvement in operating profit for both the quarter and the full fiscal year. The world’s second-largest fashion retailer attributed the sales shortfall to the timing of Black Friday but noted a positive start to the new fiscal year with improving sales in December and January.
Key Earnings Highlights
Q4 Sales: H&M reported sales of 62.19 billion Swedish krona ($5.65 billion) for the fourth quarter, missing the 63.48 billion Swedish krona forecast in a Reuters poll. However, sales were up by 3% in local currencies compared to the same period last year.
Full-Year Sales: For fiscal year 2024, H&M’s sales increased by 1% in local currencies, reaching 234.58 billion Swedish krona, driven by strong performance in womenswear, sportswear, and online segments.
Operating Profit:
- Q4: Operating profit for the quarter came in at 4.6 billion Swedish krona, surpassing analysts’ predictions of 4.2 billion.
- Full-Year: The company posted an operating profit of 17.3 billion Swedish krona ($1.57 billion) for the year, slightly higher than the 17.2 billion forecast.
Shares pared some losses following the initial drop, trading down 3.25% by 9:18 a.m. London time.
CEO’s Statement and Strategic Outlook
H&M CEO Daniel Ervér, who took the helm in January 2024, expressed optimism about the company’s trajectory despite ongoing macroeconomic challenges. “Sales and operating profit increased in the fourth quarter driven by strong online sales, well-received women’s fashion collections, and effective cost control,” Ervér said in a statement. He emphasized the company’s focus on its core business and long-term profitability, stating, “We are on track towards long-term, profitable growth.”
Looking ahead to 2025, Ervér highlighted some positive economic indicators, such as declining inflation and interest rates, which could alleviate pressure on consumers. However, he acknowledged potential risks from geopolitical uncertainty and continued macroeconomic challenges.
“Our diversified supply chain gives us the flexibility needed to mitigate negative external impacts in different markets,” Ervér added. He reiterated H&M’s commitment to offering fashion and quality at the best price in a sustainable manner, positioning the company for growth in the global market.
Challenges and Competitive Landscape
H&M continues to face stiff competition from fast-fashion rivals, including Inditex-owned Zara and low-cost retailers like Shein. The company’s performance in recent years has been hampered by rising costs and increased market competition, which led H&M to scrap its 2024 earnings margin target last September after a weaker third-quarter performance.
As part of its turnaround strategy, Ervér outlined ambitious long-term goals, including:
- Achieving annual sales growth of at least 10%.
- Maintaining an operating margin above 10%.
- Reducing greenhouse gas emissions by 56% by 2030 compared to 2019 levels.
“I’m pleased with the early progress but believe there is further potential for us,” Ervér said during a media presentation following the earnings release.
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