It was another lackluster quarter for H&M, which is battling an inventory and an identity problem

Cheap or chic: that is the root of the question for H&M, as the fast-fashion giant reported a first-quarter operating profit of ~$120 million (SEK 1.2 billion), well below the 1.9 billion kronor analysts had expected.

Part of the problem for H&M is that it has a growing pile on unsold clothing. The amount of stock-in-trade on its balance sheet rose 9% year on year, while sales only grew 3%, which is why the company has been slapping more of its red discount stickers on products in its stores and online.

The retailer has a history of struggling to maintain a tight inventory, especially after the pandemic, and has seen shares swing on its progress of clearing the stockpile. This time around, H&M’s new CEO, Daniel Ervér, expects that only “towards the end of the year we see that we will be in a better inventory situation than we were a year ago,” per an interview with Bloomberg. 

Fashion has always been a brutally competitive world, but H&M’s place in it is increasingly tricky to define — it’s not as cheap as online competitors like Shein, and it’s arguably not as chic as global rivals like Zara. Indeed, the company has spent hundreds of millions over the last few years trying to be both.

Last year, the retailer hosted a string of Charli XCX concerts, which were core to its turnaround plan, but returns on that investment are so far hard to see in the company’s top line. Net sales of about ~$23 billion in 2024 were barely higher than its 2019 total, when Zara-owner Inditex’s sales rose 48% in the same period.

Investors have rewarded the companies accordingly: Inditex’s stock has more than doubled in the last five years (up 103%), and H&M’s is barely higher (up 8%).