- Sales Decline and Seasonal Recovery: Q1 sales dropped 1% in local currencies due to weaker December demand, fewer stores (-4%), and cautious consumption, but improved in February and March with spring collections.
- Gross and Operating Margins: Gross margin rose to 50.7% (from 49.2% last year), and operating margin improved to 3.0% (from 2.2%), driven by cost control and inventory productivity (highest in 10 years).
- Inventory and Sustainability Progress: Recycled materials share increased to 32%, and inventory levels targeted at 12-14% of sales long-term; end-of-season sales reduced due to improved inventory composition.
- Cost and Tech Investments: SG&A expected to grow at low single digits, with tech infrastructure causing increased cost pressure. Promotional intensity rose to 10-12% of sales (higher than 8-10% last year).
- Regional Performance: U.S. market showed resilience despite a slight sales decline (-1.5% local currency), while South America showed positive development. Geopolitical risks and tariffs could add cost pressure in Q2.
Margin Improvement and Cost Discipline
Gross margin expansion to 50.7% is driven by higher online penetration and a 32% share of recycled materials, contributing to a 10‑year high in inventory productivity. Operating margin improvement to 3.0% reflects controlled SG&A growth at a low single‑digit rate and disciplined promotional spending. The company foresees a net positive external‑factor impact on gross margin in Q2, although geopolitical tensions in the Middle East may exert additional cost pressure. SG&A is projected to grow modestly, with tech infrastructure investments adding temporary cost drag.
Strategic Initiatives: Nearshoring, AI, and Sustainable Sourcing
H&M is accelerating nearshoring to shorten lead times and enhance flexibility, backed by a global partner network of 30 suppliers. The firm is also piloting agentic AI for customer experience, integrating large‑language models for transactional interactions—though this remains a minor traffic contributor. Sustainability remains a priority, with recycled material usage at 32% and a target inventory level of 12‑14% of sales long‑term. These initiatives are expected to support margin stability and brand differentiation.
Outlook and Guidance
Year‑end guidance remains unchanged, with the company anticipating a slightly higher cost‑of‑price‑reduction impact in Q2. It plans to keep gross margins within the 54–55% normalized band and expects a low‑single‑digit SG&A growth. The online business will continue to drive EBIT margin expansion, while inventory productivity gains will enable tighter end‑of‑season sales. Overall, H&M’s focus on value, experience, and operational agility positions it for steady, if modest, growth amid a challenging retail environment.