Key Takeaways
- H&M shares plummeted by up to 6.6% on Thursday following disappointing March sales projections
- First-quarter operating profit reached SEK 1.51 billion, surpassing analyst expectations of SEK 1.39 billion
- March sales growth forecast at 1% in constant currency terms, falling short of analyst consensus of approximately 1.8%
- Gross profit margin improved to 50.7%, exceeding the anticipated ~50.1%
- Chief executive cautioned that extended Middle East tensions could amplify inflationary pressures on shoppers
Shares of H&M (HMb.ST) tumbled by as much as 6.6% during Thursday’s trading session, retreating to price levels not seen since before the company’s spring collection debut, as market participants digested disappointing near-term revenue projections.
The Swedish fashion giant reported a 26% year-over-year increase in first-quarter operating profit, reaching SEK 1.51 billion ($162 million), which exceeded the analyst consensus estimate of SEK 1.39 billion. This represented the company’s third consecutive quarter of improving profitability.
The gross profit margin landed at 50.7%, outperforming the approximately 50.1% analyst forecast. Net profit attributable to shareholders totaled SEK 724 million, marginally surpassing projections. Diluted earnings per share came in at SEK 0.45, meeting consensus expectations.
Morgan Stanley analyst Grace Smalley characterized the results as “largely in line with investor expectations,” noting that the EBIT outperformance was “primarily driven by gross margin.”
First-quarter revenue in constant currency terms declined by 1%, aligning closely with consensus forecasts for a 0.6% contraction. Year-over-year inventory levels decreased 5% when measured in constant currency.
March Sales Forecast Falls Below Expectations
Despite exceeding profit targets, the stock experienced significant selling pressure following the company’s forward guidance. H&M projected March sales growth of merely 1% in constant currency terms. Wall Street analysts had anticipated approximately 1.8% growth for the second quarter.
Alphavalue analyst Jie Zhang described the projection as “somewhat disappointing,” particularly given management’s commentary highlighting positive customer response to the spring merchandise.
Chief Executive Daniel Erver highlighted the spring collection as a bright spot. “Towards the end of the quarter our well-received spring collections contributed to a positive sales trend, which also continued into March,” he stated.
Inderes analyst Lucas Mattsson adopted a more reserved stance. “We don’t expect any particularly strong sales growth in 2026, precisely because they haven’t showed any clear trends or patterns on that yet,” he commented.
Middle East Tensions Introduce Additional Risk
The Iran conflict has emerged as a topic of discussion during H&M’s earnings communications. Erver indicated that the conflict’s direct impact on H&M operations has been minimal to date. The retailer maintains limited exposure to the Middle East region, where its locations operate under franchise agreements, and predominantly utilizes sea and land transportation rather than air cargo.
However, he highlighted concerns about secondary effects. “A continued conflict, such as with continued high energy prices, will create inflationary pressure on a consumer who already has tough inflationary pressure,” Erver explained.
British fashion retailer Next stated earlier Thursday that the conflict would likely suppress consumer demand while simultaneously increasing operational costs and retail prices.
H&M confirmed it is “closely monitoring developments and the implications for global trade,” adding that its adaptable supply chain infrastructure provides flexibility to modify logistics operations if circumstances require.
Morgan Stanley’s Smalley indicated she was awaiting additional details from the earnings conference call, with “potential indirect implications from the Middle East conflict likely a focus of Q&A.”
H&M faces comparable year-over-year comparisons anticipated in April and May, suggesting the near-term revenue outlook remains relatively flat.
