STOCKHOLM, March 26 (Reuters) - Swedish fashion retailer H&M reported on Thursday a bigger rise than expected in December-February operating profit, and said it expected sales in March to be up 1% in
H&M warns prolonged Iran war could hit consumers hard
By Greta Rosen Fondahn
Impact of Middle East Conflict on H&M and Retail Sector
STOCKHOLM, March 26 (Reuters) - H&M warned on Thursday that a prolonged Middle East war could have a "significant impact" on consumer spending, potentially complicating the fashion retailer's efforts to catch up with rival Zara and discount Chinese brands.
Shares in the Swedish group slipped as much as 6.6% after soft March sales overshadowed a slightly bigger-than-expected rise in December-February profit thanks to tight cost control.
Rising Energy Prices and Inflation Concerns
A jump in energy prices since the start of the Iran war has fuelled concerns over inflation and cooled consumer demand, threatening to pressure retailers.
CEO Daniel Erver said H&M had not seen a hit to overall demand so far, but warned a sustained crisis could have a "significant impact" on consumer behaviour.
CEO's Warning on Consumer Behaviour
"A continued conflict, such as with continued high energy prices, will create inflationary pressure on a consumer who already has tough inflationary pressure," he told Reuters in an interview.
A lengthy conflict could also create "slightly additional" cost pressures, he added.
Industry-Wide Effects and Competitive Landscape
British rival Next said earlier on Thursday the war would likely dampen demand while pushing up costs and selling prices.
H&M, whose customer base is considered more price-sensitive than Zara's, has struggled to lift sales as shoppers cut back, caught between ultra-cheap online retailers like Shein and Zara dominating the upmarket end of fast fashion.
Financial Performance and Analyst Reactions
Quarterly Results and Market Response
'SOMEWHAT DISAPPOINTING'
H&M reported a 26% year-on-year rise in first-quarter operating profit to 1.51 billion crowns ($162 million), beating the mean forecast of 1.39 billion in an LSEG poll of analysts. That marked a third straight quarter of rising profits, despite sluggish sales.
"Towards the end of the quarter our well-received spring collections contributed to a positive sales trend, which also continued into March," Erver said.
Sales measured in local currencies fell 1%, and H&M predicted a rise of 1% in March.
"Only 1% ... is somewhat disappointing given management's comments that the spring collection has been well received," Alphavalue analyst Jie Zhang said.
Exposure to Middle East and Future Outlook
Erver said the impact of the war on H&M had been limited by its small sales exposure to the Middle East, where stores are run by franchisees. It is also little affected by airspace closures as it transports most goods by sea and land.
Inderes analyst Lucas Mattsson said it was too early to speculate about the potential effects, but remained cautious.
"We don't expect any particularly strong sales growth in 2026, precisely because they haven't showed any clear trends or patterns on that yet," he said.
($1 = 9.3424 Swedish crowns)
(Reporting by Greta Rosen Fondahn in Stockholm and Vera Dvorakova in Gdansk. Writing by Anna Ringstrom. Editing by Mark Potter)
