Updated 5:20 p.m. ET Jan. 29
LONDON — H&M Group might have had a modestly successful fiscal 2025, but the feel-good factor has already faded, with the new year starting on a low with lackluster demand in Europe and tariffs in the U.S.
H&M said sales in the fiscal first quarter ending Saturday are expected to decrease by 2 percent in local currencies.
That continues a slump that started when strong sales during the Black Friday rush led to “subdued demand in a number of markets” in December. China’s Singles’ Day, which takes place in early November, drove strong results in the fiscal fourth quarter, but also dented holiday demand.
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To exacerbate matters, Chinese New Year, a big spending holiday, falls in February this year and so comes too late to boost first-quarter sales.
It isn’t just the holidays that are taking their toll on H&M’s top and bottom line.
Group CEO Daniel Ervér said Thursday that demand in much of Europe has been tepid in the first quarter despite store refurbishments in the region and buzzy, consumer-facing events last year such as H&M’s runway show at London Fashion Week.
“We have seen muted demand in some of the large European markets that are really important for us. We’ve also seen a similar trend in some of our competitors’ reporting, too. We believe that we are performing better than the market, but the market sentiment has gone down in central Europe,” Ervér told analysts during a presentation following the fourth-quarter and year-end results announcement.
By contrast, demand in the U.S. has been robust, but that’s also created headaches for the brand.
“We went into the fall season with very prudent planning, given everything that was happening around tariffs, but the demand has stayed very strong, and it positively surprised us, and we haven’t been able to fully satisfy that demand,” he said.
“We worked hard on using the flexibility in our supply chain to catch up, but that had a spillover effect into the first quarter,” he said.
Ervér added that, overall, H&M “continues to take important steps towards all our long-term targets in a challenging environment.”
On Thursday morning, H&M shares were down 2.2 percent at 173.30 Swedish kronor, or 16.38 euros, on the Nasdaq Stockholm. The shares recovered during the day, closing down 0.73 percent at 175.90 Swedish kronor, or 16.69 euros.
As if flagging sales were not enough, U.S. tariffs and other costs will also hit profit margins this year according to Adam Karlsson, chief financial officer.
“The cost impact of tariffs are now starting to funnel through to our customers, and we will also have a somewhat increased cost pressure for 2026 coming partly from the implementation of a new tech infrastructure,” he said.
Karlsson said the company will continue to focus on “strong cost control and further efficiency measures,” including the continued rationalization of the store portfolio, more efficient operations and efforts to allocate resources to “the highest area of impact,” such as consumer-facing events.
To wit, H&M said earlier this week it was reviving its Design Award for BA and MA students from more than 60 participating schools across 25 countries.
The new edition will welcome students from eight new countries — including Australia, Mexico, Poland, Spain and Colombia. Twenty semifinalists will be chosen and revealed in October. Previous winners include Richard Quinn, Stefan Cooke and Priya Ahluwalia and Sabine Skarule.
Karlsson said the group will increase sales and admin costs in the low-single digits in the new year.
H&M is in the thick of a long-term recovery plan initiated by Ervér. He has been trying to restore the cool factor to flagship label H&M, speed up time to market, boost supply chain efficiencies and give more creative control to fewer, better suppliers.
He’s also been reducing the number of stores in the portfolio and upgrading and expanding the ones that deliver for the brand.
H&M said Thursday that sales for the fourth quarter ended Nov. 30 increased by 2 percent in local currencies, with 4 percent fewer stores at the end of the quarter compared with a year earlier. Net sales were down 7 percent to 59.22 billion Swedish kronor, or 5.62 billion euros, due to the strengthened krona.
Operating profit increased by 38 percent to 6.36 billion Swedish kronor, or 600 million euros, corresponding to an operating margin of 10.7 percent. The company said a better fashion offering, an improved gross margin and “good cost control” contributed to the increase in profit in the quarter.
Post-tax profit increased to 4.33 billion Swedish kronor, or 41 million euros, in the three-month period.
H&M said that in the quarter, selling and administrative expenses decreased by 3 percent in local currencies. Expenses were down by 9 percent to 26.70 billion kronor, or 2.53 billion euros.
The stock-in-trade decreased by 12 percent in the period and H&M described the composition of the stock-in-trade as “good.”
For the full fiscal year ended Nov. 30, sales in local currencies increased 2 percent. The group’s net sales amounted to 228.29 billion kronor, or 21.66 billion euros.
In the full year, operating profit increased to 18.4 billion kronor, corresponding to an operating margin of 8.1 percent. After-tax profit increased to 12.09 billion kronor, or 1.15 billion euros.
Jefferies described 2025 as “good,” and said that Ervér and his team “reminded investors of the extent to which a more fashionable offering was enabled by a more dynamic supply chain, where the riskier [stock keeping units] are manufactured closer to end markets and a more centralized inventory holding reduces markdown risks.”
The bank added that an enhanced H&M “has been producing more on-point womenswear and improved consumer resonance. This has provided a previously elusive resilience to a tough consumer backdrop. Tangible improvements have been made. The ability to hold markdowns flat for the upcoming Q1 after soft current trading provides a measure of that.”