Shares of H&M, the global retail giant, saw a significant drop of 8% on Thursday following the release of disappointing fiscal third-quarter results. The retailer’s operating profit plummeted to 3.51 billion Swedish crowns (approximately $345.8 million), a stark decline compared to 4.74 billion Swedish crowns during the same quarter last year. Analysts had projected an operating profit of 4.93 billion Swedish crowns, highlighting a substantial miss in expectations that sent shockwaves through the market. This unexpected downturn has raised eyebrows among investors, emphasizing the growing concerns about H&M’s financial health and strategic direction.
In response to the challenging economic landscape, H&M has now abandoned its earnings margin target for 2024. This decision, which reflects a more cautious outlook, introduces additional pressure on CEO Daniel Ervér, who has just taken the reins of the company. Appointed in late January 2023, Ervér previously expressed ambitions of delivering “unbeatable value for our customers and profitable growth,” a vision that now seems increasingly difficult to achieve. With just eight months in his role, he faces a formidable challenge in reshaping the company’s fortunes amid persistent turbulence in the retail sector.
H&M’s struggles mirror broader trends affecting the retail industry. Cooler seasonal weather, rising living costs, and a notable slowdown in spending as the world emerges from the pandemic are all factors that have negatively impacted sales. The company is not only grappling with these external challenges but is also facing fierce competition from rivals such as Inditex, the owner of Zara, and the fast-fashion juggernaut Shein. Ervér noted that unforeseen external factors have significantly affected both sales revenue and purchasing costs, leading to a revised estimate for this year’s operating margin, expected to dip below 10%.
Despite these hurdles, H&M remains optimistic about future growth. In a written statement, Ervér asserted that the company’s strategic plans are poised to enhance both sales and profitability in the long run. However, the path to recovery may involve tough decisions, including reducing the overall store count and managing markdown costs effectively. Analysts at UBS have pointed out that while H&M experienced solid sales growth in local currencies, the cost associated with markdowns has risen. This trend could compound issues as the retailer attempts to navigate a tough fourth quarter, where markdown costs are anticipated to rise further.
As H&M attempts to recalibrate its strategies in a challenging environment, stakeholders will be watching closely to see if the retailer can regain its footing and steer itself back toward sustained profitability. The coming months will be critical for the company as it aims to fulfill the entrepreneurial aspirations of its new leadership while contending with increasingly competitive and unpredictable market dynamics.