H&M profits halved in the first months of 2025

For some time now, Swedish fast-fashion giant H&M has been working to renew its image in response to Zara’s competition and, more broadly, to that of the Inditex group. The brand, which in the 2000s dominated the middle-market segment, has seen its position gradually weaken over the last decade due to a combination of factors, including a less dynamic offering compared to its rivals. Efforts to regain ground have certainly been made, especially in the past year, with collaborations such as those with Glenn Martens and Rotate, the 20th anniversary celebration of its most iconic collabs through archive reissues, and the recent campaign with Charli xcx during the peak of brat summer. 2024 has thus marked a strategic "preparation" phase for H&M: The stated goal has been, and still is, to reach and build loyalty with Gen Z by using new forms of communication, bolder stylistic proposals, and a stronger focus on the values today’s young consumers deem essential. However, just this morning, the brand released its first-quarter financial results, tempering some of the optimism built in recent months. Net profit took a significant hit, dropping to 579 million Swedish kronor (around $57.7 million) compared to 1.23 billion in the same period the previous year, clearly disappointing analysts who had forecast a result around 1.28 billion kronor.

Among the factors behind this weaker performance is, above all, a shrinking gross margin, which fell from 51.5% to 49.1%, heavily affected by seasonal markdowns, ongoing investments aimed at making the offer more competitive and innovative, and pressure caused by the strengthening of the Swedish krona on currency markets. Sales between December 1 and February 28 grew by 3%, reaching 55.33 billion kronor (about $5.47 billion), though growth in local currencies was slightly lower at 2%, along with a simultaneous 3% drop in the total number of stores. According to WWD, CEO Daniel Ervér stressed that this drop was partly expected, as the first quarter is traditionally the weakest period of the year. "Despite solid progress and careful cost control, sales and margins fell short of our expectations," Ervér stated. Some reassurance for investors comes from positive signs in key European markets such as Germany and Poland, as well as promising growth in online channels thanks to the rollout of the new e-commerce platform in more markets (though at the same time, H&M closed over 40 underperforming stores). According to Ervér, the main focus remains to strengthen the brand’s identity: "Our goal is clear: to improve our product offering, enrich and enhance the shopping experience, and consolidate the strength of our brand. We firmly believe this is the right path to ensure long-term and sustainable growth."

Compared to other brands in the H&M family – such as COS, &OtherStories, Arket, Cheap Monday, Monki, and Weekday – the flagship brand seems to lack a strong personality and clear target positioning. Each of the group’s “sister brands” knows its audience well and is aware of its direct competitors. In the past, H&M and Zara were considered two sides of the same coin in fast fashion, but that dynamic has changed: with Inditex’s repositioning of its main brand, H&M’s closest competitor today may actually be COS, both in terms of offering and pricing. If we shift our focus from fashion to the Gen Z-oriented pop sphere, Monki and Weekday – also part of the group – directly compete with brands like Bershka and Pull&Bear. H&M can still count on a broad base of loyal customers, especially for basic apparel, but with Uniqlo’s rise in recent years – which by 2025 has firmly established its market presence – competition is increasingly fierce. This raises the question: In such a competitive landscape, is real differentiation still possible? The answer is yes, and it lies in one of H&M’s long-standing strong suits: sustainability.

Alongside the financial results, this morning the Swedish group also published its annual sustainability report covering all brands under its umbrella. H&M, for instance, managed to significantly reduce its scope 1 and 2 emissions, as well as Scope 3 emissions (excluding the use phase), staying on track to halve total emissions by 2030. The company states that nearly 90% of the materials it uses today are recycled or sustainably sourced, while it continues phasing out coal use in supplier factories and working to reduce freshwater consumption. Over the years, this commitment to sustainability has earned the group several accolades for its mission of delivering “responsible” fast fashion, including recognition by Textile Exchange as a sector leader. Clearly, discussing sustainability within the fast fashion world still sounds like an oxymoron, but for H&M, it remains a vital anchor to maintain a competitive edge. Whether this approach will be enough to truly strengthen the brand’s identity and grant it lasting relevance in an increasingly saturated market remains to be seen.