H&M reports sluggish start to spring sales

By Helen Reid

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

H&M has ramped up marketing spend in a bid 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 anaemic 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.

Erver, who has led H&M for just over a year, is trying to turn its fortunes around through better marketing, spending 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.

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

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

In his statement, Erver said the hit to profitability from investments in the brand would be smaller 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 also owns brands including Arket, Cos, & Other Stories, and Weekday, has been upgrading stores and sharply reducing its overall number of stores. H&M has 4,213 stores globally, it reported on Thursday, its smallest store footprint since 2016.

($1 = 10.0259 Swedish crowns)

(Reporting by Helen Reid; Editing by Terje Solsvik, Jan Harvey and Jane Merriman)