On Thursday, H&M, the renowned Swedish retailer, experienced a significant drop in its stock price, falling over 5% in the wake of disappointing sales figures for the fourth quarter of the fiscal year. The company reported sales of 62.19 billion Swedish krona, falling short of analyst expectations of 63.48 billion Swedish krona, based on a Reuters poll. Despite these shortcomings, H&M did achieve a year-over-year local currency increase of 3%, signaling some resilience in specific areas of the business.
The lag in sales has been attributed partly to the later timing of Black Friday this year. However, the company highlighted a positive uptick in sales during December and January—offering a glimmer of hope as it began the new fiscal year. For the entire year of 2024, overall sales grew by 1% in local currencies, reaching 234.58 billion Swedish krona, an achievement largely propelled by the strength of their womenswear and sportswear lines, along with impressive performance in online sales.
Operating Profit Surprises Analysts
Conversely, H&M’s operating profit exceeded expectations, which mitigated some investor concerns. The retailer posted an operating profit of 17.3 billion Swedish krona for 2024, slightly higher than the 17.2 billion Swedish krona anticipated by analysts. Particularly noteworthy was the operating profit for the fourth quarter, which reached 4.6 billion Swedish krona—surpassing the predicted figure of 4.2 billion Swedish krona.
This uptick in profit can be attributed to robust online sales, favorable responses to their women’s fashion collections, and effective cost control measures. CEO Daniel Ervér expressed confidence in the business’s roadmap, asserting that the company is firmly on the path to achieving sustainable, long-term growth.
Looking forward, Ervér anticipates a gradual easing of pressure on consumers as the landscape shifts in 2025. However, he also warned that ongoing macroeconomic conditions and geopolitical uncertainties could continue to weigh heavily on consumer sentiment. Ervér noted some positive signs, such as declining inflation and interest rates, which may contribute to a more favorable environment for retail businesses.
Key to H&M’s adaptability is its diversified supply chain, intended to absorb shocks from varying international markets. Ervér emphasized that their business model, centered around providing fashion and quality at competitive prices sustainably, lends itself to significant resilience amid ongoing volatility.
Despite notable successes, H&M faces ongoing challenges in a fiercely competitive retail landscape. The company is locked in a strategic rivalry with Inditex-owned brands like Zara, as well as low-cost fast fashion narratives from companies such as Shein, which have garnered a considerable share of the market. In September, H&M made the decision to scrap its 2024 earnings margin target, reflecting the impact of heightened costs associated with various supply chain issues and increased competition.
CEO Ervér, who assumed the role in January 2024 with a mandate to drive the company’s turnaround strategy, indicated ambitious future goals during a media presentation following the earnings release. The retailer aims to achieve an annual sales growth of at least 10%, an operating margin above 10%, and an aggressive target to reduce greenhouse gas emissions by 56% by 2030 based on 2019 levels.
While H&M has made strides in operational profitability and has experienced an early positive start to the current fiscal year, the forecasts are mixed. The challenges posed by a competitive market and external economic pressures create obstacles that the company must navigate carefully. There is a clear acknowledgment from the leadership that while progress is commendable, significant potential remains untapped. As H&M charts its course for growth, stakeholder patience and strategic agility will be crucial in determining its success in the ever-evolving global fashion market.