H&M struggles with slow sales growth

Swedish fast-fashion retailer H&M's sales were up just 1% in March after a weaker-than-expected first quarter, a sign of a slow start to the spring and summer season.

H&M has ramped up marketing spending to boost its brand, but the returns on that investment have been slow to appear. Its shares fell 1% in early trading on Thursday in response to the anemic sales growth and lower profitability.

"Our sales and earnings in the quarter were somewhat weaker than planned – but the first quarter is the smallest quarter of the year for us in terms of sales and margin, and we are confident going forward," CEO Daniel Erver said in a statement.

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Erver, who has led H&M for just over a year, is trying to turn its fortunes around through better marketing. He is spending money on pop stars like Charli XCX to model its collections as he tries to make the brand more desirable and better compete against Zara and Shein.

The company's sales of 55.3 billion Swedish crowns ($5.52 billion) for the December to February quarter were up 2% in local currencies but below analysts' mean estimate of 55.9 billion Swedish crowns. March sales growth was weaker than the 4% increase reported a year ago.

The company said increased discounting, marketing investments, and "negative external factors" impacted H&M's profitability in the quarter, with the operating profit margin falling to 2.2% from 3.9% in the same period a year ago.

RBC analysts said markdowns in the first quarter were higher than expected due to a later Black Friday.

In his statement, Erver said the hit to profitability from investments in the brand would be more minor in the second quarter, and improvements to H&M's womenswear product assortment were starting to have a positive effect.

After hosting a string of Charli XCX concerts last year, H&M has continued to invest in big-name brand ambassadors, hiring musicians Tyla and FKA Twigs to model its spring and summer collection launched last week.

The retailer, which owns brands including Arket, Cos, & Other Stories, and Weekday, has been upgrading its stores and sharply reducing its overall number of stores. H&M has 4,213 stores globally, and it reported on Thursday that it has had its smallest store footprint since 2016.