H&M’s public-market test: Can it restructure fast enough?

Profit improved, but sales stayed weak

In the third quarter, H&M reported net sales of SEK 57.19 billion, nearly flat from SEK 57.02 billion a year earlier, with 1% growth in local currencies. Operating profit rose to SEK 6.04 billion from SEK 4.91 billion, and the operating margin improved to 10.6% from 8.6%.¹ Reuters reported that profit exceeded the LSEG analyst consensus of SEK 5.14 billion.⁵

The quality of that profit beat made investors cautious. H&M said the gross margin and operating margin were each helped by a one-time benefit of about 1.6 percentage points related to tariffs and goods imports that had raised cost of goods sold in earlier quarters.¹ Bloomberg, via Business of Fashion, noted that tariff refunds drove the profit increase while sales remained sluggish, and cited analyst concern that future profit gains will depend more on faster top-line growth as cost-cutting opportunities narrow.⁶

The share-price reaction reflected that skepticism. TradingPedia reported that H&M shares fell 2.4% to SEK 162.3 after the results, despite the profit beat, as investors focused on weak sales trends, muted September guidance, digital-infrastructure costs and the stock’s proximity to its 52-week low.⁷

The turnaround needs more than expense control

H&M’s own reporting suggests the turnaround is moving beyond simple cost reduction. The group ended the quarter with 4,023 stores, down from 4,118 a year earlier, after 59 openings and 137 closures in the first nine months of the fiscal year.²

That shows continued portfolio pruning, but not a retreat from physical retail. H&M is still opening stores in growth markets while closing or upgrading others, implying a more selective omnichannel footprint.

The supply-chain agenda is more central. Ervér told Reuters that H&M is working to buy more clothes with shorter lead times and from factories closer to main markets, saying some products can move from rough idea to customer in six weeks.⁴ H&M’s report also says it is increasing the share of in-season purchasing to respond more quickly to demand.¹

That shift is strategically necessary because H&M’s competitors have trained customers to expect constant newness. Inditex has long competed on rapid response and tight inventory discipline; ESG Dive noted its proximity sourcing in Spain, Portugal, Morocco and Turkey as part of its speed advantage.⁸

Shein and Temu add a different pressure point: ultra-low prices, data-led product testing and marketplace-style assortment breadth. H&M sits between those models, trying to offer fashion, quality, price and sustainability at scale without either Inditex’s level of structural agility or Shein’s ultra-fast online machine.

Public-market pressure cuts both ways

The case for remaining public is straightforward. Public markets impose discipline. H&M’s management must show measurable progress on margins, working capital, inventory and capital expenditure. The company’s nine-month report showed operating profit rising to SEK 13.46 billion from SEK 12.03 billion, cash flow from operating activities up 17% and a net cash position of SEK 5.31 billion.²

Those are useful constraints for a retailer trying to avoid heavy investment without accountability.

But those constraints can become counterproductive when the required change is deep and multi-year. H&M’s current program touches stores, logistics, product calendars, data infrastructure, buying processes and brand relevance. The investor presentation says capital expenditure will be at the lower end of a SEK 9 billion to SEK 10 billion investment frame, focused on the store portfolio and technology infrastructure.³

That framing balances investment with market reassurance. It also illustrates the listed-company dilemma: the retailer needs to move faster, yet investors punish signs that the move may depress near-term earnings.

The September sales outlook underscores the issue. Reuters reported that H&M’s expected 1% September sales growth was far below Inditex’s 9% sales growth reported earlier in September.⁴ In a quarterly reporting cycle, that comparison keeps pressure on management to show immediate revenue traction.

Yet many of the capabilities H&M is building — allocation accuracy, store tech, shorter lead times, regional sourcing flexibility and better digital personalization — may take longer to turn into sustained market-share gains.

Family control shapes the governance backdrop

The Persson family’s majority position gives H&M more long-term stability than most listed retailers. That can be an advantage during a turnaround: management is less exposed to activist pressure and can keep investing through volatility. It also raises the question of whether H&M already has many of the benefits of private ownership without leaving the stock market.

Still, rising family ownership changes the strategic read-through. If the market continues to assign limited value to H&M’s restructuring progress, the family may see more upside in owning a larger share of a business being rebuilt for a longer horizon.

Investors, meanwhile, may interpret stake-building as a signal that public-market valuation does not fully reflect the company’s potential — or that minority shareholders could eventually be bought out if the share price remains weak.

The key point is that ownership speculation is a symptom, not the root issue. The root issue is that H&M’s sales engine has not yet recovered. Ervér has improved profitability, but Reuters noted that sales have stagnated as cost-conscious consumers remain cautious and Shein and Inditex intensify competition.⁴

Sustainability adds another constraint

Speed is not H&M’s only challenge. The sector is under growing pressure to reduce waste, improve traceability and answer criticism that fast fashion is structurally at odds with sustainability. ESG Dive highlighted the operational paradox of quick-response models: faster customer-facing cycles can require more upstream material availability and may shift waste earlier in the supply chain.⁸

That matters because H&M’s differentiation cannot simply be “faster and cheaper.” Competing directly with Shein on velocity and price could weaken the brand’s sustainability positioning and margin structure. Competing only on quality and store experience risks ceding trend responsiveness.

The strategic middle path — faster, more precise, less wasteful and still affordable — is operationally difficult and capital intensive.

What to watch next

The clearest measure of H&M’s turnaround will be whether sales growth accelerates without sacrificing the margin gains already achieved.

Investors should watch four indicators: local-currency sales growth relative to Inditex, inventory quality and markdown levels, progress in shortening lead times, and whether store and digital investments improve conversion rather than simply add cost.

H&M has enough liquidity, family backing and operational scale to keep restructuring. Its challenge is speed.

If the company can translate in-season buying, better allocation and upgraded stores into stronger full-price sales, public-market pressure may look like useful discipline. If sales remain stuck near 1%, the argument that H&M needs a more private, patient setting for deeper change will only gain strength.