Updated 5:57 p.m. ET March 26
PARIS — Swedish fast-fashion giant H&M Group reported a slight slip in first-quarter sales as it navigates a period of structural change, with store closures and revamps weighing on growth.
Sales for the three months to Feb. 28 fell 1 percent in local currencies, reflecting a smaller store footprint following a wave of closures over the past year. At the end of the quarter, the group operated 163 fewer stores than a year earlier, or roughly 4 percent fewer, driven in part by the decision to shutter all physical locations of its Monki brand.
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The closures highlight a deliberate shift in strategy from chief executive officer Daniel Ervér, as the group prioritizes productivity and brand elevation over scale. While this approach has weighed on near-term growth, the company framed the adjustments as needed change to create a more focused and sustainable long-term business.
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“The quarter began in December with weaker demand following strong Black Friday trading in November. Towards the end of the quarter our well-received spring collections contributed to a positive sales trend, which also continued into March,” said Ervér.
He characterized the quarter as part of a longer-term repositioning effort, emphasizing investments in product, customer experience, and the brand’s fashion-forward quotient.
“We are continuing to focus on strengthening our core offering and creating a more inspiring shopping experience,” Ervér said, pointing to ongoing investments across both physical stores and digital channels.
Sales were hit harder in Swedish krona, down 9 percent for the quarter, reflecting the impact of a strengthening home currency.
The first-quarter numbers were “softer” than analysts expected and sent shares down 2.2 percent to 170.75 kronor on Thursday.
“We think H&M has taken various steps to improve its offer for customers, which should lead to a stronger sales performance in time. However, a lot of things have to improve together and so far the recovery has been somewhat unbalanced in our view,” said RBS analyst Richard Chamberlain.
Cautious Consumers and Overly Cautious Planning for U.S.
Regional performance was uneven, which Ervér chalked up to the group being “overly cautious” during the year. The Americas saw sales decline 3 percent in local currency, reflecting intense competition in the mid-market apparel segment. In the United States, the removal of de minimis exemptions that had benefitted ultra-fast, low-cost competitors such as Shein and Temu resulted in consumer demand proving more resilient than expected, creating low stock levels relative to the surge in demand.
“We went into the second half of 2025 with a very prudent plan for the U.S., given everything that was going on, and then we could see more resilience from the consumer than we expected, which led us to have a low, low supply to the demand,” said Ervér. “We do see that we’ve had a strong underlying demand in the U.S., which part can be attributed to that the low-price offer is under more pressure due to the di minimis being removed,” he added. He sees those competitors shifting their efforts towards Europe, “which is a sign that it will probably [be] a bit more challenging market” in the future.
In South America, the company reported positive growth. The Nordics experienced a soft start to the year following a strong Black Friday period, while Southern Europe performed well. Ervér called out India as a bright spot, noting that COS made its debut in the country with the opening of a store in New Delhi in 2025.
Looking ahead, the group plans to close an additional 160 stores in 2026 and open around 80 new stores.
Latin America is a growth target, with seven new stores planned for Brazil, including Rio de Janeiro. Paraguay will open as a new market in 2026 and H&M will also open its first store in Malta via franchise in the first half of 2026. H&M opened online in Ukraine during the first quarter of 2026.
The group’s more upscale label Arket opened its first store in Greece in the first quarter and will open its first store in Lithuania in 2026. During the first quarter, Arket and trend-led label & Other Stories were launched on Zalando in Sweden, the Netherlands, Denmark, France, Poland and Belgium. “Quiet luxury” label COS opened online in Canada earlier this month.
The group has yet to see any measurable effects from the U.S.-Iran war and overall situation in the Middle East, Ervér said. The region accounts for less than 3 percent of stores and its share of air freight that could be affected by the surge in oil prices is “low.”
However, if the conflict continues, it could impact overall consumer sentiment. “On a global scale, we don’t see any significant impact on the consumer behavior at this point in time, although we are very aware that the consumer has been under a high inflationary pressure for a long period of time, and increasing energy prices will have a spillover effect,” he said. March has not yet seen any impacts outside of the region, he added.
Tighter Inventory, Faster Supply Chain Ramping Up
Overall, inventory management was a key focus during the first quarter, with the company reporting tighter stock levels and improved supply-chain management.
“We continue to make efforts to really shorten the lead time, and that all the way from product development, fashion forecasting, to the production to shipment and near shoring is one of the important pieces of that part about the key for us is to shorten the full supply chain to take later decisions to provide a more relevant customer offer,” said Ervér. “We are ramping up these efforts at a high pace.”
Ervér framed the leaner inventory as part of a long-term approach to optimize operations and better match supply to demand, reducing the need for aggressive discounting.
However, sales and promotions saw an uptick in the quarter, and Ervér emphasized the need to balance a full-price, fashion-led strategy with customers who primarily respond to promotions. He noted that while markdowns will be “selective and tactical” rather than a late-in-the-season move to offload leftover inventory, temporary activations and deals remain necessary to meet consumer desires.
“We see a more cautious and selective consumer, and their behavior triggers us to increase the need for using temporary activations and deals,” said Ervér.
He noted that H&M has invested heavily in store aesthetics through the revamps, as well as product presentation, and digital integration to upscale brand perception and fashion street cred. Just over 30 percent of sales are now from online, and the company continues to trim its marketing spend, shifting toward media optimization and channel-specific content to redirect those funds to store improvements.
Those marketing spends are in areas such as fashion shows, including a partnership with Stella McCartney, a COS runway show staged in Seoul in March, and dressing actress Jihoon Kim in custom H&M for the Oscars.
Ervér also noted that the group is exploring how to become searchable on agentic AI shopping channels. “There is a consumer interest, but it’s a very, very early stage and a very, very minor part of the organic traffic that comes our way,” he said. The company is exploring how to support agentic search, as well as “how we will interact with agentic players that are brand agnostic,” in the coming years.
H&M Upscaling Amid Shifting Strategy
H&M’s selective store closures and brand portfolio streamlining — including the physical exit from youth-skewing Monki, though it continues as an online-only brand — highlight its overall willingness to focus on its core brands and higher-margin concepts such as Arket and COS.
That strategy is seen as increasingly necessary for the legacy fast-fashion player as it faces pressure from ultra-fast fashion competitors such as Shein and Temu, as well as evergreen high-street rival Zara.
The Swedish group’s dip in sales stand in contrast to Zara parent company Inditex’s fourth-quarter results, released March 11, which saw sales up 3.2 percent in constant currency as it has upscaled itself into a fashion proposition, notably by bringing on board marquee name fashion designers such as John Galliano.
Despite softer sales, H&M showed signs of resilience on profitability. Net sales for the first quarter reached $5.3 billion, or 55.3 billion Swedish krona, while operating profit stood at 2.1 billion krona, or $200 million. Cost-control measures, disciplined inventory management, and strategic promotional activity helped support margins, even as revenue growth remained modest.
Analysts expect the benefits of H&M’s ongoing repositioning to be gradual. “We see potential for H&M to move to a double-digit operating margin goal over time, driven by gross margin gains and further cost efficiencies, but we see this as more of a medium to long-term development,” added RBS’ Chamberlain.
Group Sustainability Gains
Released following the first-quarter results, the company presented its Annual Sustainability Report for 2025.
The company said that 91 percent of the materials it used were recycled or “sustainably sourced,” up from 90 percent in 2024, with 32 percent made from recycled fabrics. H&M also said that 95 percent of the electricity in its own stores and offices now comes from renewable sources. Greenhouse gas emissions continued to fall, with direct emissions down 41 percent and Scope 3 supply-chain emissions down 34.6 percent compared with 2019 baseline levels.
The report highlighted the group’s improvements in supply-chain oversight and labor standards. More factories participated in audits, and the number of serious non-compliance issues fell, the group said.
The group also reported progress with its circular initiatives, such as its majority-owned resale platforms Sellpy and second-hand offerings, while continuing to optimize store operations and product lines to reduce excess inventory.
It expanded Sellpy’s warehouse capacity in Sweden as well as launched a warehouse in Romania, and launched sales in the Czech Republic and Poland.
In addition to Sellpy, it touted online resale partnerships with Reflaunt and ThredUp, as well as the expansion of brand-specific programs such as COS Restore, Weekday Curated, Monki Preloved, H&M Home, and Arket’s ReArket and Arket Archive. These initiatives reflect the company’s broader push toward extracting value from circular business models.
In 2025 less than one percent of turnover came from resale. That share was a 31 percent increase year-over-year. “Resale expanded…as we aim to increase its share of overall turnover,” the company said.
During the year, the group invested 1.12 billion Swedish krona, or about $121 million, in operating costs and 47.4 million Swedish krona, or about $5 million, in capital expenditures, to expand and scale its resale and second‑hand initiatives, in what it framed as a substantial financial commitment to circularity.
While growing, the circular and resale initiatives account for about 30 percent of sales in relation to overall volume growth.
These numbers show that H&M is moving toward its 2030 goals, including 100 percent “sustainably sourced” materials and a 56 percent reduction in emissions.
However, the report also points to areas where the impact is fuzzier. The 91 percent “sustainably sourced” figure combines recycled materials such as polyester sourced from PET bottles and cotton with other certified fibers such as Better Cotton Initiative cotton, organic cotton, and FSC‑certified viscose, which meet varying environmental and social standards.
The reported drop in supply-chain emissions does not include the impact of how customers use the clothes — washing, wearing, and eventually throwing them away — which actually makes up the largest share of fashion’s total carbon footprint. But the group is working to move more materials to reuse and recycling and less to landfill, covering products, packaging, and operational waste across stores, distribution centers, and the supply chain with new waste management strategies that were outlined in the report.
The company also introduced a tracking system to monitor progress and continues to collaborate with partners like Looper Textiles and global initiatives such as the Global Circular Fashion Forum.