Key Takeaways
- Shares of H&M declined up to 6.6% Thursday following disappointing March revenue projections
- First-quarter operating profit reached SEK 1.51 billion, surpassing the SEK 1.39 billion estimate
- Company projects March sales to increase just 1% in constant currency versus analyst expectations of approximately 1.8%
- Gross profit margin improved to 50.7%, exceeding the anticipated ~50.1%
- Chief executive cautioned that ongoing Middle East tensions may amplify inflationary pressures affecting consumer spending
Shares of H&M (HMb.ST) tumbled as much as 6.6% during Thursday’s trading session, retreating to price levels not witnessed since prior to the spring collection debut, as market participants digested conservative near-term revenue projections.
The Swedish fashion retailer reported first-quarter operating profit of SEK 1.51 billion ($162 million), representing a 26% increase compared to the same period last year and exceeding Wall Street’s consensus estimate of SEK 1.39 billion. This performance represented the company’s third consecutive quarter delivering profit growth.
The retailer’s gross profit margin reached 50.7%, outperforming analyst projections of approximately 50.1%. Shareholder net income totaled SEK 724 million, marginally surpassing expectations. Diluted earnings per share came in at SEK 0.45, aligning closely with analyst forecasts.
Morgan Stanley analyst Grace Smalley characterized the financial results as “largely in line with investor expectations,” noting the earnings beat was “primarily driven by gross margin.”
Revenue measured in constant currencies decreased 1% during the first quarter, approximately matching consensus projections for a 0.6% contraction. The company’s inventory position declined 5% year-over-year when measured in constant currency terms.
March Revenue Forecast Falls Below Expectations
Notwithstanding the profit outperformance, investor sentiment turned negative based on forward-looking guidance. The Swedish retailer indicated that March revenue is anticipated to advance merely 1% in constant currency terms. Market analysts had been modeling growth closer to 1.8% for the second quarter period.
Alphavalue analyst Jie Zhang described the projection as “somewhat disappointing,” particularly given management’s earlier comments highlighting positive customer response to the spring merchandise assortment.
Chief Executive Daniel Erver highlighted the spring collection’s performance as encouraging. “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 maintained a 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 Create Additional Risk Factors
The Iran conflict has emerged as a discussion point during H&M’s quarterly analyst briefings. Erver indicated the military situation has had minimal direct operational impact on the company thus far. H&M maintains limited direct presence across the Middle East region, where retail locations function through franchise arrangements, and the business predominantly utilizes maritime and ground transportation instead of air freight.
However, the executive highlighted potential secondary consequences. “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 ongoing conflict would probably suppress consumer demand while simultaneously elevating operational costs and retail prices.
H&M stated it is “closely monitoring developments and the implications for global trade,” emphasizing that its adaptable supply chain infrastructure provides capacity to modify distribution strategies when necessary.
Morgan Stanley’s Smalley noted she was anticipating additional clarity 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 benchmarks throughout April and May, suggesting the immediate sales environment will remain relatively stagnant.
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