Last quarter, H&M Group’s profits got a surprise boost from an unexpected source: resale.
The Swedish fast fashion giant said Thursday that its operating profit jumped nearly 60 percent year-on-year to SEK725 million ($70 million) in the three months to the end of February, boosted by cost-cutting efforts and a one-off billion-kroner accounting gain as the company upped its stake in secondhand fashion platform Sellpy and re-valued the investment on its books. Analysts had expected the company to report a loss.
H&M Group now owns nearly 80 percent of Sellpy, which is expected to generate more than SEK1 billion in sales this year and (in a rarity for re-commerce) is near break-even.
The move offers a glimpse at how the company hopes to deliver on its challenging ambition to double sales while halving its greenhouse gas emissions by the end of the decade. It also points to the scale of the challenge.
A Challenging Balancing Act
If Sellpy meets H&M’s revenue projections this year, the company would still make up a tiny fraction of the group’s overall business — accounting for about half a percent of sales.
The company will need to rapidly and profitably scale up this and other initiatives to meet both its business and climate ambitions whilst competing with rivals like Zara-owner Inditex and ultra-fast-fashion juggernauts Shein and Temu.
“[Sellpy] is a good example of how we work on developing new circular business models and how investments in sustainability provide H&M Group with long-term business opportunities,” group chief executive Helena Helmersson told analysts Thursday. “We have a strength in the business end of combining fashion, price, quality and sustainability.”
But the company still needs to tackle near-term challenges that have seen it lag stronger rivals in recent years.
Sales inched up 3 percent in local currencies in the first quarter. The group’s operating profit margin stood at 1.3 percent, far from the 10 percent goal the company is aiming to reach next year.
Still, its share price jumped around 16 percent Thursday as investors took note of the progress the company said it was making on its cost-cutting programme.
Meanwhile, its greenhouse gas emissions are decreasing, if fitfully.
Last year, sales grew 6 percent in local currencies, while emissions in the company’s supply chain (where most impact takes place) fell 3 percent. Better inventory management — a long-term business challenge for the group — improved energy efficiency and increases in renewable energy and volumes of recycled material all helped drive the decline.
H&M spent roughly SEK2.6 billion on decarbonisation projects in 2022. By 2025, the company has said 30 percent of the materials it uses in its clothes will be recycled (up from 23 percent today), and by 2030 all of its manufacturers will run on renewable energy. It has dozens of venture investments in innovations and business models intended to keep pushing the group toward its climate goals.
As with Sellpy, whether its new ventures can deliver profitably and at scale by the end of the decade remains an open question that relies as much on slow-moving systemic changes to build out infrastructure and shift the market as on the group’s own actions.
A Risky Business
The group’s high-profile commitments to transform its business are among fashion’s most ambitious, and its most criticised.
The company has adjusted the way it talks about its sustainability efforts in its marketing, after falling foul of a wide-ranging greenwashing crackdown last year. There remain significant gaps between its ambitions and where the business is today. But long-term, the group said more muted communication of its climate efforts poses its own risks.
“We expect increasing scrutiny of our claims and our commitment,” said group transparency lead Anna Eklöf-Asp. But “if we avoid taking imperfect steps because we’re afraid of being criticised, there will be no steps at all within this area.”
The company outlined numerous climate-related business risks in its latest annual report, including access to raw materials like cotton, the impact of unpredictable weather on sales, shifting consumer expectations and rising costs.
“We know we have many challenges to tackle in the coming years and we have a great sense of urgency,” said Helmersson. “But we know with that also comes great opportunities.”
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