Key Highlights
- Shares of H&M tumbled up to 6.6% Thursday following disappointing March sales projections
- First-quarter operating profit reached SEK 1.51 billion, surpassing analyst estimates of SEK 1.39 billion
- March sales expected to rise just 1% in constant currency terms, missing the ~1.8% consensus estimate
- Gross profit margin improved to 50.7%, exceeding the anticipated ~50.1%
- Chief executive cautioned that extended Middle East tensions could fuel consumer inflation
Shares of Swedish fashion retailer H&M (HMb.ST) declined 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 a softer-than-anticipated sales trajectory.
The Stockholm-based retailer reported operating profit of SEK 1.51 billion ($162 million) for the first quarter, representing a 26% year-over-year increase and exceeding the SEK 1.39 billion analyst consensus. This performance marked the third consecutive quarter of profit growth for the fashion giant.
The company’s gross profit margin reached 50.7%, outperforming the approximately 50.1% that analysts had projected. Net income attributed to shareholders totaled SEK 724 million, modestly above market expectations. Diluted earnings per share came in at SEK 0.45, largely matching consensus forecasts.
Morgan Stanley equity analyst Grace Smalley characterized the quarterly results as “largely in line with investor expectations,” attributing the EBIT outperformance “primarily driven by gross margin.”
First-quarter sales declined 1% when measured in constant currency, approximately matching the consensus projection of a 0.6% decrease. The company’s inventory position decreased 5% year-over-year on a constant currency basis.
March Sales Guidance Disappoints Investors
Despite the better-than-expected profit figures, H&M’s stock faced selling pressure following its forward-looking statements. The retailer indicated that March sales are projected to increase by only 1% in constant currency. Market analysts had been anticipating approximately 1.8% growth for the second quarter.
Alphavalue research analyst Jie Zhang described the projection as “somewhat disappointing,” particularly given that company leadership had highlighted positive customer response to its spring merchandise.
Chief Executive Daniel Erver highlighted the spring collection’s performance. “Towards the end of the quarter our well-received spring collections contributed to a positive sales trend, which also continued into March,” he commented.
Inderes equity 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 noted.
Geopolitical Tensions Create Additional Headwinds
The ongoing Iran conflict has emerged as a discussion topic during H&M’s earnings communications. Erver indicated that the military conflict’s immediate impact on H&M’s operations has been minimal to date. The retailer maintains limited exposure to Middle Eastern markets, where its locations operate through franchise agreements, and predominantly utilizes maritime and ground transportation rather than air freight.
However, he emphasized 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.
UK-based retailer Next indicated earlier Thursday that the military conflict would probably suppress consumer demand while simultaneously driving up operational costs and retail prices.
H&M stated it is “closely monitoring developments and the implications for global trade,” noting that its adaptable supply chain infrastructure provides flexibility to modify logistics arrangements if circumstances require.
Morgan Stanley’s Smalley indicated she was awaiting additional insights 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 throughout April and May, suggesting the near-term sales environment will remain relatively flat.
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