H&M AB reported a second-quarter operating profit of 5.91 billion kronor (approximately $610 million), falling short of analysts' average estimate of 6.3 billion kronor. Sales in local currencies decreased by 3%, while analysts had expected flat growth. The results for the three months through May were impacted by one-time costs of 679 million kronor related to organizational changes. Excluding these one-time costs, operating profit increased by 11% to 6.59 billion kronor, achieving a 12% margin, up from 10.4% in the same quarter last year.
CEO Daniel Ervér's efforts to revive growth are under scrutiny after years of inconsistent performance. While recent improvements in profitability, driven by leaner inventory levels and stronger full-price sales, have been welcomed by investors, the focus has shifted to whether the retailer can achieve consistent top-line growth. Jefferies analysts noted that H&M's operational discipline is helping to offset a lack of top-line progress, and inventory control is particularly impressive, reducing markdown pressures.
Despite inventory falling 10% year-on-year, revenue excluding currency effects remained broadly flat, indicating little improvement in consumer demand. H&M faces significant pressure from low-cost rivals like Shein and Primark, as well as Zara owner Inditex, which has outperformed with faster product cycles and more responsive supply chains. The company is also contending with evolving consumer behavior, as shoppers increasingly opt for ultra-fast-fashion platforms and secondhand marketplaces.
Sales in June are anticipated to be on par with the previous year. H&M's stock has declined approximately 9.3% year-to-date through Wednesday's close, in contrast to a decline of just under 1% for Inditex shares.
