Sweden's H&M posts $2.58 bn profit in Q1 FY25 despite margin pressure

The company’s sales performance was strong across Western, Southern, and Eastern Europe, with notable growth in Germany and Poland. Online sales also continued to perform well, indicating that customers value the upgraded digital store.

The gross profit of the company amounted to SEK 27,169 million (~$2.58 billion) in Q1 FY25. The profitability was negatively impacted by a weaker gross margin of 49.1 per cent which in turn was affected by negative external factors, increased markdowns and investments in the customer offering. The Swedish krona strengthened in the first quarter, with the result that currency remeasurement effects have also negatively affected the gross margin compared with the previous year. The company estimates that the overall negative effect of these will be significantly smaller in the second quarter (Q2) than in Q1.

The selling and administrative expenses amounted to SEK 25,938 million (~$2.46 billion) and the operating profit amounted to SEK 1,203 million, corresponding to an operating margin of 2.2 per cent. The cash flow from operating activities increased to SEK 4,201 million.

In addition, extended transport times associated with the situation in the Red Sea continued to affect inventory. The composition of the stock-in-trade is assessed to be good, H&M said in a press statement.

In March 2025, the H&M group expects sales in local currencies to rise by 1 per cent compared to the same month the previous year. The adverse impact of external factors, higher markdowns, and investments in the customer offering appears to be less pronounced in the second quarter than in the first.

The group has made substantial progress with its strategic plan and maintained solid cost control, sales and earnings for the quarter were slightly below expectations. However, as the first quarter is typically the smallest in terms of sales and margin, the company said that its outlook remains optimistic.

The group continues to integrate its physical and digital sales channels through its omni-model. The upgraded digital store, rolled out to additional markets during the quarter, has received positive customer feedback. Upgrades to physical stores remain a priority, with key store rebuilds underway in major cities and expanded customer experience improvements planned across more markets during the year, added the press statement.

“We have a stable financial position that gives us the flexibility to prioritise what creates the most value for our customers. With macroeconomic and geopolitical uncertainty, it is important that we continue to focus fully on our plan and offer the best combination of fashion, quality, price and sustainability for everyone. We are therefore further strengthening our customer offering through an upgraded product offering, a more inspiring shopping experience and a stronger brand. This creates the conditions for long-term profitable and sustainable growth, with the H&M brand and organic growth in focus,” said Daniel Erver, chief executive officer (CEO) at H&M. “We are continuing to optimise the store portfolio by closing select stores. We went into the quarter with nearly 120 fewer stores compared to the same time last year and we had 40 net store closures during the period.”

Fibre2Fashion News Desk (SG)