Key Takeaways
- Second quarter operating income reached SEK 5.91 billion, falling short of analyst projections of SEK 6.38 billion
- Revenue totaled SEK 54.83 billion versus expectations of SEK 55.25 billion
- Stricter inventory controls negatively impacted the retailer’s capacity to satisfy consumer demand
- Excluding SEK 679 million in one-time restructuring expenses, adjusted operating income increased 11% to SEK 6.59 billion
- The company anticipates June revenue to remain unchanged year-over-year in local currency terms
Shares of the Swedish fashion retailer H&M declined approximately 2.5% on Thursday following the release of second quarter financial results that disappointed Wall Street analysts.
The company reported operating income of SEK 5.91 billion for the three-month period ending in May. This figure fell below analyst consensus estimates of SEK 6.38 billion. Total revenue reached SEK 54.83 billion, similarly trailing the projected SEK 55.25 billion.
The shares traded at 164.40 Swedish crowns, representing a decline of 4.3 crowns during the session.
Chief Executive Daniel Ervér admitted that the company’s decision to implement tighter inventory controls came with trade-offs. “The tighter inventory management has, however, in some cases affected our ability to fully meet demand,” he noted in the earnings release.
Revenue measured in local currencies remained essentially unchanged compared to the prior year period. The retailer also operated with approximately 3% fewer physical locations at the end of the quarter versus the same time last year.
Digging Into the Financial Details
The shortfall in headline figures was predominantly attributed to non-recurring expenses. The company recorded SEK 679 million in restructuring charges related to reorganization efforts within its sales markets and central sales operations.
When these charges are excluded, adjusted operating income climbed 11% to SEK 6.59 billion, representing a margin of 12% compared with 10.4% in the year-ago period. According to Morgan Stanley’s analysis, this underlying performance exceeded consensus forecasts by approximately 3-4%.
Gross profit margin expanded to 56.6% from 55.4% in the comparable quarter, surpassing analyst expectations of 56.5%.
Net income remained stable at SEK 3.96 billion. Earnings per share showed modest growth, rising to SEK 2.49 from SEK 2.48. Operating cash flow surged 24% to reach SEK 10.59 billion.
Inventory holdings decreased 10% year-over-year to SEK 34.94 billion. When adjusted for currency fluctuations, the reduction was 2%.
For the six-month period of fiscal 2026, total revenue stood at SEK 104.44 billion, down from SEK 112.05 billion in the prior year. Excluding extraordinary items, operating income for the first half increased 14% to SEK 8.10 billion.
Wall Street Reaction
Morgan Stanley, maintaining an “underweight” rating with a 120 crown price objective, characterized the results as “broadly in line with investor expectations.”
However, the investment bank expressed some reservations regarding the outlook for the latter half of the year. Analysts highlighted decelerating revenue growth in constant currency and diminishing benefits from previous cost reduction measures, as savings from gross margin optimization and overhead efficiency programs begin to plateau.
The firm also emphasized that technology spending is scheduled to accelerate from the second half onwards, while raw material procurement and shipping expenses continue to present challenges.
H&M indicated that it anticipates third-quarter promotional markdowns to approximate last year’s levels. June revenue in local currency terms is projected to show no year-over-year growth.
Throughout the quarter, H&M launched its inaugural location in Rio de Janeiro and ceremonially reopened its flagship store on Hamngatan in Stockholm. The company has plans to debut its first store in Paraguay during the second half of 2026 and enter the Argentine market in 2027.
