March 26 (Reuters) – H&M warned on Thursday that a prolonged war in the Middle East could have a ‘significant impact’ on consumer spending, potentially complicating the fashion retailer’s efforts to catch up with rival Zara and lower-cost Chinese brands.
Shares in the Swedish group fell as much as 6.6% after weak March sales overshadowed a slightly larger-than-expected rise in profit between December and February thanks to strict cost controls. Rising energy prices since the start of the war with Iran have fueled concerns about inflation and cooled consumer demand, threatening to pressure retailers.
Chief Executive Daniel Erver said H&M has not seen an impact on overall demand to date, but warned that a prolonged crisis could have a ‘significant impact’ on consumer behavior.
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“Continued conflict, such as continued high energy prices, will create inflationary pressure on a consumer who is already facing strong inflationary pressure,” Erver said in an interview with Reuters.
A prolonged conflict could also generate ‘slightly additional’ cost pressures, he added. British rival Next said on Thursday that the war would likely reduce demand while increasing costs and selling prices. H&M, whose customer base is considered more price-sensitive than Zara’s, has struggled to increase sales as consumers reduce their spending, pressured by ultra-cheap online retailers such as Shein and Zara, which dominate the luxury segment of fast fashion.
‘A LITTLE DISAPPOINTING’
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H&M reported a 26% increase in first quarter operating profit compared with the same period last year, reaching $162 million, beating the average forecast in an LSEG survey of analysts. This marked the third consecutive quarter of increased profits despite weak sales.
“At the end of the quarter, our spring collections, which were well received, contributed to a positive sales trend, which also continued into March,” said Erver.
Sales measured in local currencies fell 1%, and H&M predicted a 1% increase in March.
‘Just 1%…is somewhat disappointing considering management’s comments that the spring collection was well received,’ said Jie Zhang, analyst at Alphavalue.
Erver said the impact of the war on H&M was limited by its small sales exposure to the Middle East, where stores are run by franchisees. The company is also little affected by airspace closures, as it transports most of its goods by sea and land.
Inderes analyst Lucas Mattsson said it was too early to speculate on the possible effects, but remained cautious.
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“We do not expect particularly strong sales growth in 2026, precisely because they have not yet demonstrated clear trends or patterns in this regard,” he said.
