The news: H&M is struggling to find its footing as its Q2 2026 results came in below expectations, with local-currency sales falling 1% against analyst forecasts of flat growth, per Bloomberg.

Zooming in: While the retailer’s top-line sales fell, it managed to improve its margins.

• Excluding one-time reorganization costs of 679 million kronor ($68.95 million), operating profit rose 11% to 6.59 billion kronor ($670 million).
• Inventory fell 10% YoY despite broadly flat underlying sales, reducing the risk of heavy discounting later in the season.
• H&M now operates 3% fewer stores than a year ago, concentrating its footprint on higher-performing locations.

Zooming out: The retailer is caught in the middle of a polarized apparel market. Consumers are splitting between ultra-cheap platforms like Shein and brands with clearer identities, like Aritzia and Uniqlo, which are expanding aggressively as H&M continues to shrink its footprint.

Weak consumer sentiment and a broader spending slowdown in Western Europe—which accounts for about 35% of its sales—compound the pressure.

CEO Daniel Ervér said sales fell short because supply chain and inventory allocation issues left product availability misaligned with customer demand across key markets and categories, including womenswear—a category in which it has invested heavily to improve trend detection.

The retailer maintained its full-year outlook but flagged weak consumer sentiment in Western Europe and rising airfreight costs tied to elevated fuel surcharges.

Despite improving inventory and slimming down operations, H&M has yet to answer the fundamental question of why a shopper should choose it over a cheaper or more distinctive alternative.

Implications for retailers: H&M is making two simultaneous bets on its recovery. The first is structural: It has been shifting production out of Asia to shorten lead times and limit overstock, a strategy in place since CEO Ervér took over in 2024. However, its womenswear supply gap in Q2 shows the work that remains. Faster production only creates value if the designs are compelling enough to pull shoppers back.

The second bet is cultural. H&M pointed to Taylor Swift wearing one of its pieces at an NBA game this spring and Brazilian music star Anitta performing at the World Cup opening in a custom H&M look, signaling a deliberate push to build relevance through pop culture. Celebrity moments can reach audiences that performance advertising cannot, but they are hard to engineer consistently.

With 3% fewer stores, H&M has less passive brand exposure than a year ago, while Aritzia and Uniqlo are using expansion as a brand-building tool. That makes H&M’s reliance on cultural moments even more critical, while also raising the question of whether it can generate that kind of relevance consistently enough to offset its shrinking physical presence.

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