H&M warns over profitability target miss as costs weigh

Fast fashion giant H&M has warned it will not meet its profitability target this year after a weather hit to sales and amid cost pressures.

The group revealed that earnings in its third quarter tumbled by a worse-than-expected 26% to 3.5 billion Swedish krona (£258 million) as sales fell 3% after a poor start due to cold weather in June.

Sales on a local currency basis were flat in the three months to September 30, despite what H&M described as a “challenging start” to the quarter.

H&M’s recently hired chief executive Daniel Erver, who took the reins at the end of January, cautioned that the group would fail to meet its 10% profitability target as higher costs take their toll.

Shares in the Stockholm-listed firm were 4% lower in Thursday morning trading.

Mr Erver said: “Consumers’ living costs have remained high during the year, and at the same time we continue to see turbulence in the world around us.

“External factors have impacted our sales revenue and purchasing costs more than we expected.

“At present we estimate that this year’s operating margin will be lower than 10%.”

H&M’s operating margin for the year so far stood at 7.4%, with a third-quarter margin of 5.9%.

The group, which has 4,298 stores worldwide, had already said in June that it was coming under pressure from higher material costs, while the Red Sea shipping disruption is adding time and expense.

It has also faced increasing competition from the likes of budget online fashion giants Shein and Temu, as well as high street competitor and Zara owner Inditex.

H&M has also been leading a concerted marketing push featuring singer Charli XCX as it looks to boost sales.

The group said its autumn collection has been “very well received” and that sales in local currencies are set to jump by 11% in September.

But it said: “The cost of markdowns in relation to sales in the fourth quarter is expected to increase somewhat.

“The long-term investments in marketing are continuing in the fourth quarter, with costs expected to be a little higher than in the third quarter.”

It added it was “monitoring developments in the Red Sea and the global freight market” and taking action to lessen the impact on stock availability and freight costs.

Mr Erver replaced Helena Helmersson in January after she left following four years in the role amid flagging profitability at the group.