H&M promises change as slow sales undermine profit boost

By Greta Rosen Fondahn and Helen Reid

STOCKHOLM, Sept 24 (Reuters) - Swedish fashion retailer H&M is driving changes to improve efficiency and react more quickly to fashion trends, its CEO said on Thursday, after the company reported a slowdown in sales in Western Europe, its biggest market.

Since Daniel Erver became CEO in January 2024, H&M's profitability has improved and third-quarter profits were boosted by a one-off refund of US tariffs.

Sales have stagnated, however, as cost-conscious consumers are cautious and Shein and Zara owner Inditex have provided tough competition.

In an interview with Reuters, Erver highlighted the retailer's efforts to buy clothes with shorter lead times and from factories closer to its main markets as it faces fast-moving trends and increasingly unpredictable weather.

"We are able to get product from having a first rough idea to the customer in six weeks, and when we talk about shortening the lead times, it is about increasing the share that we buy in that way," he said.

H&M's sales grew 1% overall in the third quarter in local currency terms, but they declined 1% in Western Europe, where Erver said consumers had been "under a lot of pressure for a long time". He also said logistics shifts, including shutting down its Belgian warehouse, had impacted revenue.

"We are not yet where we want to be, but step by step, we are firmly building a faster and more flexible and customer-focussed H&M," Erver said.

OIL CRISIS MAKES RENEWABLE ENERGY SWITCH MORE URGENT

Another challenge is the U.S.-Israeli war on Iran that has disrupted shipping and air freight and pushed up transport costs.

As Bangladesh, a manufacturing hub for H&M, hikes fuel prices in response to a global rise in oil costs, Erver said the retailer is working with suppliers there and around the world to switch to renewable energy.

"It's a good way to accelerate the transformation that we need to lower the CO2 emissions, but also build resilience to geopolitical challenges," he said in an interview, adding that H&M is set to fully phase out coal-fired boilers from its supply chain this year.

PROFIT BOOST FROM US TARIFF REFUNDS

Refunds from US tariff payments boosted operating profit in H&M's fiscal third quarter to 6.04 billion Swedish crowns ($608.63 million) from 4.91 billion crowns a year earlier and compared with a mean forecast of 5.14 billion crowns in an LSEG poll.

But H&M said it did not expect any further tariff refunds and sluggish sales growth disappointed investors.

After falling 3% at the open, shares were trading around 2% lower later in the session.

H&M said sales in September would rise by 1% in local currencies — the same rate as the June-August quarter, and much slower than Zara owner Inditex's 9% sales growth reported earlier this month.

H&M has cut its store numbers and is refurbishing those that remain, having improved a fifth of its 4,000 stores so far. It is also investing in logistics as online sales have grown to more than 30% of the total, saying it would start using new warehouses in Europe this year and next to improve its capacity and product availability.

Erver said he welcomed the European Union imposing customs fees on low-value ecommerce packages, a measure he had called for to ensure fair competition with platforms like Shein and Temu, but he played down the likely impact on H&M's sales.

Meanwhile, the billionaire heirs of H&M founder Erling Persson have been quietly ‌increasing their stake, fuelling speculation they could eventually take the group private.

H&M's third-quarter sales were 57.189 billion Swedish crowns ($5.79 billion), compared to 57.017 billion a year ago.

($1 = 9.9239 Swedish crowns)

(Reporting by Greta Rosen Fondahn and Helen Reid. Editing by Terje Solsvik, Mark Potter and Barbara Lewis)