H&M is facing continued investor scepticism over its turnaround strategy, as improving profitability and operational efficiencies fail to translate into sustained sales growth amid a challenging global retail environment.
The Swedish fast-fashion group reported a 26% year-on-year rise in first-quarter operating profit to around 1.5 billion Swedish kronor, beating analyst expectations, driven by tight cost control, improved gross margins and more disciplined inventory management. However, the improved profitability was offset by weak consumer demand, as sales declined by around one percent in local currencies and fell short of market expectations, while modest growth of just one percent in March further disappointed analysts.
Investor sentiment has weakened as a result, with H&M shares falling following the results announcement, reflecting concerns about the durability of the company’s recovery and its ability to revive top-line growth.
The company’s performance highlights a persistent imbalance in its turnaround, where margin expansion is being achieved largely through cost discipline rather than demand recovery. Over recent quarters, H&M has improved profitability through lower inventory levels, reduced markdowns in earlier periods, and supply chain optimisation, including more flexible sourcing and investments in logistics infrastructure.
Daniel Ervér, who took over as chief executive in 2024, has been leading the turnaround with a focus on strengthening product appeal, accelerating supply chain responsiveness and sharpening the brand’s core offering. He has indicated that while early signs of improvement are visible in profitability and customer response to collections, external pressures and cautious consumer spending continue to weigh on overall demand.
Despite these operational gains, sales momentum remains weak. The group has reported soft trading across multiple periods, including a 2 percent decline in early-year sales and only marginal growth during key seasonal transitions, underscoring ongoing demand challenges. It is noted that while profitability improvements are encouraging, the long-term success of the turnaround depends on H&M’s ability to reignite revenue growth.
The retailer continues to face intense competitive pressure in the global apparel market, particularly from premium fast-fashion leader Inditex, as well as ultra-low-cost digital-native players such as Shein. These dynamics have left H&M struggling to clearly differentiate its positioning, with consumers increasingly polarised between higher-quality fashion and deep-discount alternatives.
Macroeconomic factors are adding further uncertainty. The company has warned that prolonged geopolitical tensions, including the ongoing Middle East conflict, could drive inflationary pressures and dampen consumer spending, particularly among its price-sensitive customer base. Rising energy costs and broader economic volatility are expected to weigh on discretionary spending, complicating the retailer’s recovery trajectory.
At the same time, H&M is continuing to restructure its business model. The company plans to close around 160 stores and open about 80 new locations in 2026, as part of a broader effort to optimise its store network and improve efficiency. It is also accelerating investments in digital channels and supply chain agility, while reducing reliance on long-distance sourcing to respond faster to changing fashion trends.
While management maintains that these initiatives are laying the foundation for long-term growth, analysts remain cautious. The company has now delivered multiple quarters of improving profit but has yet to demonstrate a consistent rebound in sales, which remains the key metric investors are watching.
H&M’s turnaround, therefore, remains a work in progress, with its ability to regain market share and rebuild demand likely to determine whether the recovery story gains traction in the coming quarters.
