On Thursday, H&M’s stocks took a significant downturn, plummeting more than 5% after the Swedish retail behemoth reported disappointing sales figures for the fourth quarter. The company’s revenues totaled 62.19 billion Swedish krona, falling short of the anticipated 63.48 billion Swedish krona forecasted by market analysts, as per a Reuters survey. While this represented a 3% growth in local currencies, the overall disappointment reflects growing pressures on the brand amidst changing consumer dynamics and fierce competition in the fashion retail sector.
H&M’s management attributed some of this shortfall to the timing of Black Friday, which occurred later than usual this year. Nevertheless, the company expressed optimism, noting a recovery in sales during December and January, which could indicate a healthier start to the new fiscal year. Overall, H&M reported a modest 1% increase in sales for 2024, amounting to 234.58 billion Swedish krona, buoyed primarily by strong performances in womenswear, sportswear, and online sales.
Despite the disappointing sales figures, H&M managed to produce an operating profit of 17.3 billion Swedish krona ($1.57 billion) for the year, slightly exceeding the 17.2 billion Swedish krona forecast by analysts. The company’s fourth-quarter operating profit also surpassed expectations, landing at 4.6 billion Swedish krona compared to the 4.2 billion expected.
In commentary accompanying the earnings, CEO Daniel Ervér highlighted that factors like robust online sales, positive reception of women’s fashion lines, and effective cost control contributed to the company’s overall profitability. This reflects a strategic focus on foundational aspects of the business, which, according to Ervér, positions H&M for long-term sustainable growth. Yet, investor sentiment remains wary as stock prices continue to reflect broader market uncertainties.
Looking to the future, Ervér proposed a cautious yet proactive vision for 2025, expressing hope that consumer pressures might ease. He alluded to a range of positive indicators, such as decreasing inflation rates and lowering interest rates, which could restore consumer confidence and spending. H&M’s diversified supply chain has been emphasized as a crucial asset in navigating potential adverse developments in international trade, affording the company greater flexibility.
Importantly, the CEO reiterated H&M’s commitment to its business philosophy of offering fashion and quality at competitive prices while adhering to sustainability principles. This approach embodies a dual commitment to both environmental responsibility and consumer appeal. Such commitments are particularly vital in a challenging macroeconomic environment where brands are frequently scrutinized for their ecological footprints.
However, H&M’s ability to reclaim and retain market share is not guaranteed. The brand faces stiff competition from industry rivals like Inditex-owned Zara and rapidly expanding fast-fashion competitors such as China’s Shein. In light of these market dynamics, the Swedish retailer previously withdrew its earnings margin target for 2024, a strategic pivot influenced by rising costs and increased competition that compressed third-quarter profits.
The current performance data provides a significant trial for newly appointed CEO Ervér, whose mandate has been to initiate a turnaround for H&M. In the aftermath of the recent earnings release, he articulated a vision targeting long-term sales growth of at least 10% annually and sustaining an operating margin above 10%. Moreover, he pledged significant environmental goals, aiming to cut greenhouse gas emissions by 56% by 2030 based on 2019 levels.
While H&M shows glimmers of resilience through operating profit growth and positive early indicators for the new fiscal year, its path forward remains fraught with challenges. Confronting intense competition, evolving consumer behaviors, and macroeconomic pressures will require innovative strategies and robust execution. The commitment to sustainability and cost efficiency will inevitably be tested as the brand navigates an increasingly complex retail landscape. Whether H&M can pivot effectively under Ervér’s leadership to capture lost ground remains to be seen in the coming quarters.