H&M profit beats expectations in Q4
Cost controls lift margins as winter sales slow in Europe
Swedish fashion retailer H&M reported a stronger-than-expected rise in fourth-quarter operating profit, driven by improved cost control, higher gross margins and reduced discounting, but warned that winter sales have slowed in some markets. Operating profit for the fiscal fourth quarter, which includes the Black Friday period, rose to 6.36 billion kronor from 4.62 billion a year earlier, outperforming analyst expectations and lifting the operating margin to 10.7% from 7.4% on an organic sales increase of 2%.
Executives attributed the profit improvement to tighter inventory management, lower freight costs and discipline on promotions, which helped stabilise profitability despite only modest sales growth. Inventory levels were reported as more balanced, reducing the need for heavy markdowns. Online sales remained important but showed more moderate growth than during the pandemic.
H&M cautioned that demand in the current winter season has been uneven across regions. Sales were slower than expected in parts of Europe where household budgets remain strained by high living costs, elevated interest rates and economic uncertainty. Colder-than-average weather in some areas did not translate into stronger clothing demand, and consumers continued to prioritise essentials over discretionary purchases. Currency movements also affected reported sales in certain markets.
Management said it will prioritise profitability over aggressive top-line growth, focusing on margin maintenance while selectively investing in expansion in targeted emerging markets, refining its store footprint and enhancing digital capabilities. The company reiterated its commitment to improving product quality, fit and sustainability and to increasing supply-chain flexibility to better match shifting trends and limit excess stock.
Looking ahead H&M struck a cautious tone, citing ongoing macroeconomic uncertainty, geopolitical risks and potential volatility in energy prices as factors that could weigh on consumer confidence and demand. Analysts noted the results highlight the broader challenges for global apparel retailers: easing cost pressures have helped margins, but a full recovery in sales momentum has yet to materialise. H&M’s shares moved modestly after the update, reflecting investor relief over the profit beat tempered by concern about the softer near-term sales outlook.
