Key Takeaways
- Second quarter operating profit reached SEK 5.91 billion, falling short of the SEK 6.38 billion analyst consensus
- Revenue totaled SEK 54.83 billion, below the anticipated SEK 55.25 billion
- Conservative inventory approach limited the retailer’s capacity to satisfy customer orders
- After excluding SEK 679 million in restructuring expenses, underlying operating profit climbed 11% to SEK 6.59 billion
- The company projects June sales will remain unchanged versus prior year in local currency terms
Shares of H&M declined approximately 2.5% Thursday following the Swedish fashion retailer’s release of second-quarter financial results that underperformed Wall Street projections.
The company reported operating profit of SEK 5.91 billion for the three months ending in May, missing the analyst estimate of SEK 6.38 billion. Revenue came to SEK 54.83 billion, which also trailed the SEK 55.25 billion consensus.
The stock traded at 164.40 Swedish crowns, representing a decline of 4.3 crowns during the session.
Chief Executive Daniel Ervér conceded that the company’s stricter approach to inventory management came with trade-offs. “The tighter inventory management has, however, in some cases affected our ability to fully meet demand,” he noted in a prepared statement.
Revenue remained essentially unchanged year-over-year when measured in local currencies. The retailer also operated with approximately 3% fewer locations at the end of the quarter compared to the same period twelve months prior.
Digging Into the Financial Details
The reported shortfall was primarily attributed to non-recurring expenses. The company recorded SEK 679 million in restructuring charges related to organizational changes in its sales markets and central sales division.
Excluding these exceptional items, adjusted operating profit increased 11% to SEK 6.59 billion, representing a margin of 12% compared to 10.4% in the previous year. According to Morgan Stanley analysis, this underlying performance came in approximately 3-4% above market expectations.
Gross profit margin expanded to 56.6% from 55.4% in the comparable period, surpassing the forecasted 56.5%.
Net income remained stable at SEK 3.96 billion. Per-share earnings inched higher to SEK 2.49 from SEK 2.48. Operating cash flow surged 24% to 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 2026, net sales totaled SEK 104.44 billion, compared to SEK 112.05 billion in the prior year. Excluding exceptional charges, operating profit for the half-year period increased 14% to SEK 8.10 billion.
Wall Street Perspective
Morgan Stanley, which maintains an “underweight” rating on H&M with a 120-crown price objective, characterized the results as “broadly in line with investor expectations.”
However, the investment bank expressed some reservations about the outlook for the latter half of the year. It highlighted decelerating constant-currency sales growth and diminishing benefits from cost reduction programs, as savings from margin enhancement and overhead efficiency initiatives begin to moderate.
The firm also emphasized that technology spending is scheduled to increase starting in the second half, while elevated raw material and logistics expenses continue to present challenges.
H&M indicated it anticipates third-quarter promotional activity to align with year-ago levels. The company forecasts June sales in local currencies will be unchanged compared to last year.
Throughout the quarter, H&M inaugurated its initial location in Rio de Janeiro and relaunched its premier store on Hamngatan in Stockholm. The retailer has scheduled its first Paraguayan store opening for the second half of 2026 and plans to enter the Argentine market in 2027.
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