PARIS — H&M Group’s better-than-expected third-quarter results are the first sign that the long-term recovery plan from chief executive officer Daniel Ervér is starting to bear some fashionable fruit.
The group’s operating profit jumped 40 percent in the third quarter, chalked up to an improved customer offering, strict cost controls and better gross margins, against a smaller store footprint and relatively flat sales growth.
Ervér has made rebuilding the brand cool factor for its flagship label H&M and speeding up time to market some of his top priorities, including the unusual step of giving more creative control to suppliers.
Related Articles
In a conference call with analysts following the results, Ervér said the brand has improved its design speed in part by consolidating its production to a smaller pool of long-term strategic partners that contribute to design.
You May Also Like
The company is “working with a set of suppliers that can be much quicker, where they can support with a larger part of the product development process,” Ervér said. “We work a lot with how we collaborate…to really speed up our supply chain, and that’s how we develop higher responsiveness and can buy more in season and which creates a better position and also is more relevant for our customers.”
Head of investor relations Joseph Ahlberg added that H&M is “ramping up with a collection of suppliers with their own product development capabilities,” enabling the company to quickly turn around design concepts. That goes all the way to the group’s Tier 3 suppliers, which includes raw material producers like cotton farmers.
Ervér said that third-quarter numbers don’t fully reflect the U.S. tariff changes, which will be felt more heavily in the fourth quarter. Karlsson added that the “consequences” of those duty changes are expected to be “fully loaded” by the first quarter next year.
But the company is holding back on any widespread price increases, at least for now.
“We are continuously looking at, how do we have a competitive offering, and how do we optimize our pricing position in the U.S., as we do in all other markets, and that leads to both price decreases and price increases to stay competitive,” Ervér said.
H&M is navigating a tightrope, both pushing its premium positioning to win over fashion-forward consumers with a pricier Studio Line while continuing to rely on markdowns to drive traffic among the price-sensitive. “We still see a need to use reduction to activate the customer from time to time,” said Ervér, noting that consumers are feeling the unpredictability of global headwinds.
H&M continues to face pressure from both low-cost, ultra-fast-fashion players like Shein and Temu, and fashion-forward leader Zara, which has positioned itself as an aspirational brand.
To regain its cool factor, Ervér has invested extensively in branding efforts, from hosting music events featuring Anitta, Charli XCX, Lola Young and Tyla to opening London Fashion Week with a splashy runway show.
“We’re keeping a very high [marketing] activity when it comes to how we strengthen the brand, and how we create excitement around all the brands in the portfolio, but especially with the focus on the H&M brand,” Ervér said.
Still, the brand has struggled to fully reconnect with trend-conscious consumers, according to Third Bridge analyst Yanmei Tang, and pop stars don’t come cheap.
“The company is spending more than expected on marketing to attract younger and trend sensitive shoppers, but results have yet to materialize,” she said. “Its repositioning strategy focused on younger women through womenswear, [activewear] and beauty has started to gain traction, but our experts broadly agree it will take at least 18 to 24 months before the brand sees meaningful revenue impact.”
H&M’s reliance on Chinese and Bangladeshi manufacturing has slowed nearshoring efforts compared to rival Inditex, which has moved facilities to Morocco and Turkey to better serve the European market. Karlsson said Red Sea disruptions still mean that the company “cannot sail the shortest route between Asia and the customer in Europe.”
“As a result, H&M is expected to keep its entry-level price points competitive against rivals such as Shein and Temu, while selectively raising prices in mid-tier and premium categories where demand is less elastic,” Tang added.
The performance reflects that Ervér’s recovery plan is still in the early stages, said RBC analyst Richard Chamberlain. “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,” he said.
“We see potential for H&M to move closer 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 longer-term aspiration,” Chamberlain added.
The smaller store formats are key to that product positioning strategy, paired with an improved user experience on the recently relaunched, streamlined and more arty website. “This is a good example of how we are developing the customer experience but also strengthening our brand,” Ervér said.
Overall, operating profit rose to 4.91 billion Swedish krona, or 428 million euros, from 3.51 billion krona, or 306 million euros, year-over-year earlier.
The news sent its shares up 8.2 percent in midday trading.
Sales in local currencies rose 2 percent during the three months to Aug. 31, despite a 4 percent reduction in store count. However, a stronger Swedish krona created a negative currency effect of 5 percent, bringing net sales down to 57.02 billion Swedish krona, or 4.97 billion euros, from 59.01 billion krona, or 5.14 billion euros.
Cost reductions also supported profit growth. Selling and administrative expenses fell 5 percent to 25.17 billion krona, or by about 1 percent in local currencies.
H&M also opened its first store in Brazil during the quarter. A second store is planned by year-end, and four more are scheduled to open in 2026, including one in Rio de Janeiro, as the company eyes opportunities for expansion across Latin America.
“We continue to focus fully on updating a large part of our stores globally, with improvements in layout, presentation and tech to further enhance the customer experience, while at the same time the physical and digital channels strengthen and complement each other,” Ervér said.
H&M is investing in RFID and advance tracking to raise precision in planning, stock management and reduce inventory — a strategy that has worked well for rival Zara, which has implemented RFID soft tags across its Zara stores. The tech has been credited with its omnichannel integration and continued stable sales growth.
Inventory levels fell 9 percent year-on-year in krona terms and 3 percent in constant currency, while selling and administrative expenses also fell by 5 percent.
Ervér said the group is seeing “a gradual strengthening for the full-price performance of the collection” as product improvements land, but also noted the need to maintain accessible price points amid continued consumer caution and price sensitivity.
“We have done long-term improvements of improving the management of the stock, and that reflects both in how we operate the stores and also benefits logistics efficiency,” said chief financial officer Adam Karlsson.
Looking ahead, sales in early September were tracking “on par” with the same month last year, when sales rose 11 percent in the quarter. Karlsson cautioned that early-month figures are unreliable due to unpredictable weather in Europe.
Beyond its flagship label, H&M Group operates Cos, Weekday, Cheap Monday, Monki, &Other Stories and Arket. Cos, in particular, has seen momentum in the “accessible luxury” space, Ervér said.
“Cos is now leading a breakthrough in mass fashion brand building,” according to the Lyst Index, which ranked it sixth after an 11 percent jump in brand searches and a 44 percent increase in demand. Its recent New York Fashion Week show was praised for production value.
Ervér also noted that Weekday is performing well, while Monki has fully transitioned to a digital-only brand after closing its physical stores earlier this year.