H&M slumped to lower than expected sales and profit as the retailer warned that its cost-cutting drive is leaving some stores unable to keep up with demand.

The Swedish-listed firm took 54.8bn kronor (£4.2bn) in sales in the three months to the end of May, flat year on year.

Its operating profit jumped by 11 per cent to 5.9bn kronor (£463m), though it failed to meet the 6.3bn kronor (£490m) expectations of analysts polled by Bloomberg.

Daniel Erver, the fashion giant’s chief executive, admitted that sales in the period were “somewhat lower than planned,” failing to outweigh the 679m kronor (£52m) one-off costs of its turnaround.

Cost cuts ‘affect ability to meet demand’

The retail boss also conceded that the firm’s efforts to tighten inventory in its stores has, “in some cases, affected our ability to fully meet demand”.

The clothes seller operated 163 fewer stores at the end of May than at the same time last year, as it ramps up plans to renovate its existing stores and open in some new locations.

H&M’s sales fell in western and eastern Europe and North and South America, while it saw a five per cent jump in revenue to 7.4bn (£577m) kroner in southern Europe.

The group said it is “highly affected by external risks linked to the industry’s rapid shifts, changing consumer behaviour, geopolitical tensions that affect the stability of the supply chain and increased complexity around cybersecurity”.

‘Hit squarely’ by Iran war

Robyn Duffy, an analyst at audit firm RSM UK, said these results show a period “hit squarely by the crisis in the Middle East, a trough in consumer confidence during the period dented demand”.

But the fashion giant’s tighter control of supply chains and costs, along with favourable currency movements, is “delivering positively for profitability,” she added.

“We operate in a world that continues to be characterised by uncertainty and rapid change,” Erver said, adding that H&M’s attempts to simplify its operations have moved it “closer to the customer”.

H&M has faced fierce competition in recent years from online fast-fashion sellers like Asos and Shein, as well as second-hand marketplaces such as Vinted and Depop.

Stockholm-based Hennes & Mauritz AB was founded by Erling Persson in 1947 as a women’s clothing retailer, before expanding into men’s fashion in later decades. It has been listed in Sweden since 1974.