The Swedish fast-fashion retailer reported lower-than-expected revenues in its last quarter, which ended in November. The company’s sales were up 3% in local currency terms, and operating profit was up to 4.6 billion Swedish kronor ($4.2 million), slightly higher than analyst estimates. 

CEO Daniel Ervér said that the company was on the “right track” as it continues to focus on revamping its product line and streamlining its operations.  

“We have set a clear direction focusing fully on our core business: improving what makes the biggest difference for the customer and removing what doesn’t,” he said.  

H&M has taken a slew of measures to improve operations and lure shoppers back, notably Gen Z. H&M partnered with young celebrities like Charli XCX, who also delivered a surprise gig for the brand in New York in November. 

However, the company is battling deeper problems that could take longer to resolve. 

Jefferies analyst James Grzinic wrote on Thursday that H&M’s earnings “confirm that the step up in marketing efforts is not having an especially significant impact on market share trends.” 

Ervér, who joined H&M as a summer trainee in 2005, took over from its longtime CEO, Helena Helmersson, last year. At the time, H&M had been struggling: It was losing ground to the likes of Zara on the pricier end and Shein on the cheaper end. H&M has also seen its earnings decline amid price hikes, which turned cash-strapped customers away.    

To be sure, the seasonality of retail demand has offered bright streaks for H&M, including during the first quarter of 2024 when the Swedish company’s spring designs attracted buyers. 

Going fast with fast fashion

Ervér aims to make H&M respond faster to consumer trends with AI and find a balance between offering premium clothing and making it affordable. If H&M is able to do that successfully, it should not only increase revenue but also give it a winning chance against rival retailers. 

To improve efficiency, the company is closing and refurbishing double the number of stores opening this year and nearshoring more of H&M’s production in Europe and America.

H&M is eyeing sales growth of at least 10% and operating margins of above 10% in the long term, which will be helped by increased marketing and product spending. 

A major roadblock is lowering inventory levels, which H&M said were impacted by disruptions in the Red Sea and a delayed Black Friday last year. Excess inventory levels could hurt margins if they aren’t reduced. In addition, macroeconomic issues have increased the cost of living for many consumers.

“The company talks about ‘great potential’ and having a clear plan to drive profitable and long-term growth. Sadly, the uncertain economic backdrop in many of its operating regions means it faces an uphill battle in the short term,” AJ Bell’s investment director Russ Mould said.

However, the year is off to a good start for H&M. The Stockholm-based retailer said sales were up 4% year over year between Dec. 1 and Jan. 28. Now, those sales figures will just have to continue climbing for 10 more months. 

H&M’s shares were down 4.8% as of 12 p.m. London time.