We believe revenue growth remained soft in H&M's Q2 (Mar-May), driven by weak market data, reflecting softer consumer confidence and cold weather in April. As a result, we have revised our estimates downward. That said, we still believe supply-chain efficiencies, good operational cost control, and external margin tailwinds should continue to support profitability in Q2. In our view, the valuation levels are still elevated, and, given the ongoing topline concerns, we still view the risk/reward as unattractive. As a result, we reiterate our Sell recommendation but lower our target price to SEK 150 per share (prev. SEK 155), mainly due to reduced estimates.

Investment case relies on increased sales growth

In our view, H&M's investment case depends on product and brand investments to strengthen the customer offering and drive a sales-driven margin recovery. While the biggest positive driver for H&M is clearly topline growth, the main near-term risks to achieving this are a lack of brand traction and prolonged weak consumer confidence.

Weak topline, resilient margins

In connection with its Q1 report, H&M communicated that it expected modest growth of 1% in local currencies in March 2026. Since then, we believe market data has deteriorated, especially in Germany and Eastern Europe, reflecting softer consumer confidence and cold weather in April. As a result, we forecast revenue to decline 1% in local currencies in Q2’26.

As for margins, the company guided for the overall effect of external factors (such as material, freight, and transactional FX) to be somewhat positive versus the corresponding quarter last year. At the same time, H&M guided for the cost of markdowns as a percentage of sales to be somewhat higher year-on-year, driven mainly by its push to activate demand in a price-sensitive environment. Given this, together with ongoing supply-chain efficiencies, we expect the gross margin to expand by approximately 1.0 percentage point, rising from 55.4% to 56.4%. On fixed costs, we expect continued strong cost control from efficiency measures, including logistics gains and more effective marketing. Overall, we estimate absolute EBIT will increase to SEK 6,174m, with the EBIT margin improving from 10.4% to 11.3%.

Revenue acceleration looks set for beyond 2026

H&M has launched strategic initiatives across product (greater trend responsiveness via a consolidated supplier base and more near-shoring), omnichannel experience (a more inspiration-led website and an optimized store portfolio), and brand relevance (stronger marketing and higher returns on ad spend), but these have yet to translate into meaningful sales growth. Together with weak market data and low consumer confidence, we believe this suggests a more meaningful acceleration is likely pushed beyond 2026, prompting us to lower revenue estimates by some 1-3% and absolute EBIT estimates by some 2-6% for 2026-2028. On margins, we believe the gross margin tailwind is fading as supply-chain efficiencies mature in H2'26, while freight and raw material price increases pose a risk unless passed through to consumers. On costs, H&M has shown solid operating control through store optimization, inventory productivity, and more efficient marketing, though we expect OPEX to grow in H2'26 on the phasing of technology investment, in line with guidance.

We still believe that the valuation is stretched

In our view, the valuation multiples are high in absolute terms, and the DCF and relative valuation paint a similar picture. H&M's strong brand and healthy balance sheet are convincing, but topline concerns remain, and without sustained revenue growth it will be difficult to demonstrate durable long-term earnings growth. In the absence of clear evidence supporting such growth, we view the risk/reward as unattractive and continue to wait for more favorable entry points.