H&M Sales Miss Forecasts in Q1, But Cost Controls Boost Profit

Profit discipline is doing the heavy lifting at H&M right now, and the numbers from the retailer's first quarter make that trade-off impossible to ignore. Operating profit rose 26% to SEK 1,512 million, pushing the operating margin to 3.0% from 2.2% a year earlier. The beat was clean: H&M's operating profit of 1.51 billion crowns surpassed the mean analyst forecast of 1.39 billion crowns in an LSEG poll. But the revenue line told a different story.

Sales in local currencies fell 1%, while the store count was roughly 4% lower than in the same quarter a year ago. Revenue in Swedish kronor was further hit by a currency translation effect of just over 9 percentage points, driven by a strengthened Swedish krona. Net sales for the quarter came in at 55.3 billion Swedish kronor, or approximately $5.3 billion, while operating profit reached around $200 million.

CEO Daniel Ervér acknowledged the headwinds without sugarcoating them. "Good cost control and an improved gross margin contributed to strengthened profitability in a quarter characterised by cautious consumption and large currency translation effects," he said. The quarter opened with weaker demand in December, following strong Black Friday trading in November, before well-received spring collections helped push a positive sales trend that continued into March.

The margin gains were hard-won. Gross margin expanded by 160 basis points to 50.7%, driven primarily by internal supply chain improvements. Margins were supported by cost control measures and a more disciplined approach to inventory, which helped limit discount sales. Inventory productivity reached a 10-year high, contributing to cost control.

The store reduction was partly by design. At the end of the quarter, the group operated 163 fewer stores than a year earlier, driven in part by the decision to shutter all of its Monki brand physical locations. Looking ahead, the group plans to close an additional 160 stores in 2026 and open around 80 new ones. Expansion is being channeled selectively: Latin America is a growth target, with seven new stores planned for Brazil including Rio de Janeiro, while Paraguay will become a new H&M market and the brand will open its first franchise store in Malta in the first half of 2026.

The competitive context is unforgiving. H&M's first quarter results stand in contrast to Zara parent Inditex's fourth quarter, released March 11, which saw sales rise 3.2% in constant currency. H&M, whose customer base is considered more price-sensitive than Zara's, has struggled to lift sales as shoppers pull back, caught between ultra-cheap online players like Shein and Zara's dominance at the upmarket end of fast fashion.

Even the modest March outlook drew skepticism. Alphavalue analyst Jie Zhang called the projected 1% sales rise "somewhat disappointing given management's comments that the spring collection has been well received." The profit beat marked a third straight quarter of rising profits, despite sluggish sales — a run that underscores how far H&M has leaned into operational efficiency as its primary growth engine. Whether that trade-off can hold as the brand attempts to reclaim volume is the central question heading into the rest of 2026.