Investing.com -- Shares of H&M Hennes&Mauritz (ST:HMb) AB B (LON:0HBP) tumbled 5.75% as the retailer reported fourth-quarter sales on Thursday that fell short of expectations and issued a cautious margin outlook.

The the retailer reported net sales in the fourth quarter amounted to SEK 62,193 million, an increase of 3% in local currencies, the company said in a press release. 

Despite the softer sales, the company's fourth-quarter earnings before interest and taxes (EBIT) reached SEK 4.6 billion, surpassing the consensus of SEK 4.3 billion.

This beat was attributed to a gross margin of 54.6%, higher than the expected 53.3%, helped by favorable foreign exchange movements and supply chain improvements. The quarterly earnings per share (EPS) stood at SEK 1.92, exceeding the anticipated SEK 1.80.

H&M provided a cautious first-quarter margin outlook due to deteriorating external factors compared to the fourth quarter and said it expects a higher year-on-year markdown costs, partly because of the timing of Black Friday shipments.

"While continued challenging macroeconomic conditions and geopolitical uncertainty may impact the consumer sentiment during 2025, we see some positive signs such as inflation and interest rates going down. Our diversified supply chain gives us the flexibility needed to mitigate negative external impact in different markets," the company's chief executive officer Daniel Ervér said in the release. 

A Jefferies analyst said in a note that the company's Q4 results, though impacted by the calendar, confirm that the step up in marketing efforts is not having a particularly significant impact on market share trends.

"We presume that the near-term sales payback from upped marketing activity has not been sizeable enough to allow for a firmer margin expansion triangulation," the analyst added.  

An RBC analyst said, "We see potential for H&M to move closer to a double-digit operating margin goal owing to gross margin gains and further cost efficiencies, but see this as more of a longer-term aspiration."

Despite these challenges, H&M announced a full-year dividend of SEK 6.80 per share, which is slightly above the forecasted SEK 6.75.

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