H&M issued a warning on Thursday that a prolonged conflict in the Middle East could severely affect consumer spending, potentially hindering the fashion retailer’s efforts to close the gap with competitors like Zara and low-cost Chinese brands. Following the announcement, shares of the Swedish company dropped by as much as 6.6%, as weak sales in March overshadowed a slightly better-than-expected profit increase for December through February, driven by strict cost management.
The surge in energy prices since the onset of the Iran war has raised inflation concerns and dampened consumer demand, posing a threat to retailers. CEO Daniel Erver noted that while H&M has not yet experienced a decline in overall demand, a prolonged crisis could substantially alter consumer behavior. He explained that ongoing conflict and sustained high energy costs would intensify inflationary pressures on consumers already facing financial strain.
Erver also mentioned that a lengthy conflict might lead to additional cost increases. Similarly, British competitor Next indicated earlier on Thursday that the war would likely reduce demand while increasing expenses and retail prices.
H&M’s customer base is generally more price-sensitive compared to Zara’s, and the company has struggled to boost sales as shoppers tighten budgets, caught between ultra-cheap online retailers like Shein and Zara’s dominance at the higher end of fast fashion.
In the first quarter, H&M reported a 26% year-on-year rise in operating profit, reaching 1.51 billion Swedish crowns ($162 million), surpassing the average analyst forecast of 1.39 billion. This marked the third consecutive quarter of profit growth despite sluggish sales. Erver highlighted that the well-received spring collections contributed to a positive sales trend toward the end of the quarter, which continued into March.
However, sales measured in local currencies declined by 1%, with H&M forecasting a modest 1% increase for March. Alphavalue analyst Jie Zhang described the 1% rise as somewhat disappointing, given management’s positive remarks about the spring collection.
Erver attributed the limited impact of the war on H&M to its minimal sales exposure in the Middle East, where stores are operated by franchisees. Additionally, the company has been less affected by airspace closures since most goods are transported via sea and land routes.
Inderes analyst Lucas Mattsson advised caution, stating it is too early to predict the conflict’s full effects. He expressed skepticism about strong sales growth in 2026, noting the absence of clear trends or patterns at this stage.
($1 = 9.3424 Swedish crowns)
