Key Highlights
- Shares of H&M tumbled up to 6.6% Thursday following underwhelming March sales projections
- First quarter operating profit reached SEK 1.51 billion, surpassing analyst estimates of SEK 1.39 billion
- Company projects March sales growth of just 1% in constant currency terms, falling short of analyst consensus around 1.8%
- Gross profit margin improved to 50.7%, exceeding expectations of approximately 50.1%
- Chief executive cautioned that ongoing Middle East tensions may generate additional inflationary pressures on shoppers
Shares of Swedish fashion retailer H&M (HMb.ST) plummeted as much as 6.6% during Thursday trading, retreating to price levels not seen since before its spring collection debut, as market participants digested disappointing near-term revenue projections.
The Stockholm-based clothing giant reported first-quarter operating profit of SEK 1.51 billion ($162 million), representing a 26% year-over-year increase and exceeding the SEK 1.39 billion analyst consensus estimate. The performance represented the company’s third consecutive quarter of profit growth.
The retailer’s gross profit margin registered at 50.7%, outperforming the approximately 50.1% analyst projection. Net profit attributable to shareholders totaled SEK 724 million, marginally above forecasts. Diluted earnings per share came in at SEK 0.45, closely aligned with consensus expectations.
Morgan Stanley analyst Grace Smalley characterized the quarterly results as “largely in line with investor expectations,” noting the EBIT outperformance was “primarily driven by gross margin.”
First quarter revenue in constant currency terms declined 1%, closely matching consensus projections for a 0.6% contraction. The company’s inventory position decreased 5% year-over-year on a constant currency basis.
March Revenue Forecast Falls Below Expectations
Despite the better-than-expected profitability, investor sentiment turned negative following the company’s guidance. H&M indicated that March revenue is projected to increase by only 1% in constant currency terms. Wall Street analysts had been anticipating 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 consumer response to the spring collection.
Chief Executive Daniel Erver emphasized the spring merchandise 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 outlook. “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.
Geopolitical Tensions in Middle East Create Additional Headwinds
The Iran conflict has emerged as a discussion topic during H&M’s quarterly earnings presentations. Erver indicated that direct operational impact from the conflict has been minimal to date. The retailer maintains limited exposure to the Middle East region, where operations are conducted through franchise agreements, and primarily utilizes ocean and ground transportation rather than air freight.
However, the executive highlighted potential 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 warned.
UK-based retailer Next indicated earlier Thursday that the military conflict would likely suppress consumer demand while simultaneously increasing operational costs and retail prices.
H&M stated it is “closely monitoring developments and the implications for global trade,” adding that its adaptable supply chain infrastructure provides flexibility to modify logistics arrangements if circumstances require.
Morgan Stanley’s Smalley noted she was awaiting additional information 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 for April and May, suggesting the near-term revenue trajectory will remain relatively flat.
