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H&M has all but abandoned its profit target for the year as the Swedish fast-fashion chain struggles to boost margins amid higher material and marketing costs and intense competition from rivals such as Shein and Zara.
Daniel Ervér, H&M’s chief executive since January, told the Financial Times that the company believed it would reach its operating profit margin target of 10 per cent eventually “but it will not happen in 2024”.
Operating profit in the third quarter dropped 26 per cent from a year earlier to SKr3.5bn ($350mn), well below the average analysts’ expectations of SKr4.9bn. The operating margin for the first nine months was 7.4 per cent.
H&M has struggled for more than a decade with weak profitability after being outpaced by Spain’s Inditex, the world’s largest fashion retailer and owner of the Zara brand. In recent years the Swedish company has come under intense pressure from lower-cost rivals such as Shein and Temu.
The expected miss on its much-touted profitability target is a blow for Ervér, who took over after the sudden resignation of previous boss Helena Helmersson.
Ervér had in recent months said that H&M needed to boost sales again in order to reach its profitability target and cut costs further.
The company’s shares were down by about 4 per cent in afternoon trading in Stockholm on Thursday. They have fallen about 1.5 per cent since the start of the year, while Inditex’s have risen roughly 35 per cent.
H&M’s operating profit margin fell from more than 20 per cent in 2010 to just 3.2 per cent in 2022, before rebounding to 6.2 per cent. Investors accused it of relying on opening new stores to increase sales before the pandemic while largely ignoring the drop in profitability.
In recent years H&M has closed a significant number of stores, while it announced last month that it would shut digital fashion outlet Afound, one of its numerous smaller brands.
Its sales in the third quarter declined by 3 per cent to SKr59bn after a bad start due to cold weather in June, and were flat in local currency terms.
H&M added on Thursday that its autumn collection had been “very well received” after a large marketing campaign featuring singer Charli XCX and that sales in September — in its fourth quarter — were expected to increase by 11 per cent in local currencies.
Ervér said that H&M needed “to create excitement around the brand” after suffering from declining brand loyalty among consumers. He added that marketing investments would stay “elevated” in the final quarter, before the company evaluated what worked best for next year.
He conceded that the early start in autumn and weak comparable numbers last year had helped H&M in September, but said it was also aided by a “good buzz” around its collection with some clothes selling out online within hours.
