H&M, the Swedish high-street fashion retailer, is bracing for lower-than-expected profit margins for the year, due to rising costs for materials and marketing, in addition to stiff competition from adversaries like Shein and Zara. Daniel Ervér, CEO at H&M since the start of the year, shared the company anticipates this year’s operating margin will not meet the previously forecasted 10%.
In Q3, the operating profit plunged 26% to SKr3.5 billion (€439.2 million), a shortfall against the average prediction of SKr4.9 billion by analysts. The operating margin for the initial three quarters stood at 7.4%.
For over ten years, H&M has grappled with lagging profitability, outperformed by Inditex, the Spanish fashion empire and the parent company of Zara. The Swedish firm has faced increasing heat from budget competitors such as Shein and Temu in recent times.
Ervér’s failure to hit the heavily promoted profitability target comes as a setback, succeeding the abrupt departure of his predecessor, Helena Helmersson. Ervér had previously indicated that H&M should aim to increase sales, in tandem with hitting its profitability target.
H&M saw the company’s stock price drop by 8% in early trading in Stockholm on Thursday, marking a downturn of approximately 5% since the year began, in contrast with Inditex’s stock, which has seen an approximate increase of 35%.
Since 2010, when H&M’s operating profit margin was over 20%, the figure plummeted to a mere 3.2% in 2022 before recovering slightly to 6.2%. Investors have claimed that H&M focussed excessively on store expansions to drive sales, while ignoring the profitability decrease pre-pandemic.
In recent times, H&M has shuttered a substantial number of its stores, and also declared last month it would close its smaller brand, digital fashion outlet Afound. The company’s sales dipped by 3% to SKr59bn in Q3 owing to a poor beginning caused by cold weather in June and remained static in terms of local currency.
H&M stated on Thursday that the autumn collection has been greatly appreciated following a comprehensive promotional campaign featuring the singer Charli XCX. In addition, it predicted an 11 per cent rise in sales in September, during the fourth quarter, in local currencies.
Looking towards 2024 as a significant milestone, the company plans to lay the groundwork for projected expansion. H&M is set to intensify enhancements to its customer services while scaling back on aspects that don’t bolster its brand or enhance sales and profitability. H&M’s CEO, Ervér, pointed out that external influences have hindered their sales revenue and procurement costs more than anticipated. However, he is confident of an upturn in both sales and margins.
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