STOCKHOLM ― Swedish fashion retailer H&M reported a smaller-than-expected profit for its second quarter on Thursday, saying its effort to keep stock levels lower to reduce waste and save money meant it was sometimes unable to fully meet demand.
The Swedish group said volatile polyester and cotton prices hit margins in recent months, though it said there were signs of prices now coming down.
Its shares fell 2 percent in early trading.
CEO Daniel Erver, who has been trying to turn H&M around as it struggles to compete with ultra-cheap online retailers like Shein and Inditex's Zara at the upmarket end of fast fashion, said sales were still not "where we want to be," adding weaker European consumer confidence also had an impact.
"While we're very happy about the improved stock efficiency... there are pockets across product types, price groups, markets, where we came in slightly short on supply in relation to demand," he said at a press conference.
Operating profit in the March-May quarter was unchanged year-on-year at 5.91 billion Swedish crowns ($606.5 million), having risen three quarters in a row, against analysts' forecast of 6.38 billion in an LSEG poll.
Sales measured in local currencies were roughly flat in the quarter, and H&M predicted flat local-currency sales also in June, year-on-year.
H&M's inventory levels were down 10 percent from a year ago, to 34.9 billion Swedish crowns ($3.58 billion).
H&M profit holds up
The quarter was closely watched for how H&M weathered the Iran war's impact on consumer confidence and costs. Profit margins held up, with the gross margin widening to 56.6 percent from 55.4 percent a year earlier against an expected 56.5 percent.
Excluding a one-off restructuring cost of 679 million crowns related to organizational changes, operating profit rose 11 percent.
Erver, CEO since January 2024, has been trying to draw shoppers back to H&M with more trendy styles and revamped stores.
He has spearheaded marketing partnerships including a collection with pop star Charli XCX, and most recently a collaboration with designer Stella McCartney.
Picking up the pace of its store upgrades, H&M said it now plans to open 90 new stores and close 170 this year, up from the 80 openings and 160 closures it said it expected in March. The retailer has drastically reduced store numbers over the past five years.
While H&M's profit margins have been improving, sales have been more sluggish due to competition with cut-price online retailers for price-sensitive customers.
