This story has been updated.
Hennes & Mauritz Group may have struggled with growth and profitability in the fiscal third quarter, but the Swedish fast-fashion giant is not giving up on its double-digit dreams.
The company said during its third quarter presentation that operating margin for the 2024 fiscal year will be lower than its previously stated goal of 10 percent. In the third quarter it was 5.9 percent, down from 7.8 percent in the corresponding period last year.
“Double-digit profit is a long-term ambition,” said the group chief executive officer Daniel Ervér on the call that followed Thursday’s results statement.
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The company also declined to say whether it could achieve its 10 percent goal in 2025, but vowed to continue improving sales, cutting costs, controlling inventory and polishing the product until it gets there.
“Sales are not where we need them to be, but we are committed to our long-term goals and focused on building and strengthening sales, and moving toward double-digit growth. We are confident that our plan will contribute to increased sales and profitability,” he said.
Ervér described 2024 as a year in which H&M is “laying the foundation for future growth, increasing the pace of improvements in the customer offering, and deprioritizing things that don’t strengthen our brands or contribute to our sales and profitability.”
As reported, H&M is being squeezed at both ends of the market, with fast-fashion competitor Zara benefiting from its trendier brand perception to hit historically high sales even as it has raised prices, and Chinese ultra-fast-fashion players like Shein offering bargains galore.
In response to the competition, H&M has been improving its fashion offer, upgrading its retail environments and broadening its price points as it looks to become a more efficient and profitable company.
A new retail concept began rolling out earlier this year with new store on London’s King’s Road, which opened in March. It offers a more upscale and curated fashion mix along with an improved focus on customer service, and styling tips.
During a call with analysts, Ervér acknowledged that performance was disappointing in the key summer months. He blamed the flat sales and drop in profits on consumers’ “high living costs, turbulence in the world around us and purchasing costs, which were more than we expected.”
In the three months to Aug. 31, revenue was flat in local currency terms while profits sank 30 percent, with macroeconomic pressures and a chilly start to the summer taking their toll.
The Stockholm-based group said revenue was 60.89 billion Swedish kronor, or 5.38 billion euros at current exchange. Profit after tax was 2.31 billion Swedish kronor, or 203.7 million euros at current exchange.
Operating profit was down 26 percent to 3.51 billion Swedish kronor, or 309.7 million euros, with adjusted operating margin broadly in line with the corresponding period last year.
“Despite a challenging start, we are concluding the third quarter with sales on par with last year in local currencies and with good cost control,” Ervér said, adding that the fourth quarter has begun on a high note, with the company’s supply chain overhaul beginning to bear fruit.
The autumn collection was “well-received,” with sales in September set to be 11 percent higher than the previous period last year, in local currency terms.
The autumnal September weather helped boost sales, with certain pieces at H&M selling out “within hours” of hitting the shop floor. Ervér added that the excitement around the H&M brand was palpable.
Adam Karlsson, chief financial officer, said the group has also been working hard on supply chain management over the past year. It now has better replenishment capabilities, and is able to react quicker to increased demand compared with a year ago.
“The supply chain is becoming more flexible, and we’re becoming more responsive,” he said.
In addition to upgrading its physical stores, the company has recently launched a new, more streamlined “digital experience” as well as a string of collaborations.
The first flagship for H&M Beauty in Sweden also opened this month, while digital stores will be opening on two of China’s biggest e-commerce platforms, Douyin and Pinduoduo.
Ervér added the group would continue to focus on opening stores in emerging markets, and shutting them in nonstrategic locations.
At the close of the third quarter, the group’s store estate was 2 percent smaller than the corresponding period last year with a total of 4,298 units.
During the first nine months of the current financial year, 61 new stores have opened and 132 stores have closed, with 259 of the group’s stores operated by franchise partners.