H&M Stock Slides as Second Quarter Earnings Fall Short of Expectations

Key Takeaways

• Operating profit for Q2 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
• Stricter inventory controls negatively impacted the retailer’s capacity to satisfy customer orders
• When excluding SEK 679 million in restructuring expenses, adjusted operating profit increased 11% to SEK 6.59 billion
• The company anticipates June sales in local currencies to remain unchanged year-over-year

Shares of H&M declined approximately 2.5% on Thursday following the Swedish fashion retailer’s second-quarter earnings report, which disappointed market expectations.

The company’s operating profit for the three-month period ending in May totaled SEK 5.91 billion, missing analyst projections of SEK 6.38 billion. Revenue figures also underperformed, registering SEK 54.83 billion against consensus estimates of SEK 55.25 billion.

H&M’s shares were changing hands at 164.40 Swedish crowns, representing a decline of 4.3 crowns during trading.

Revenue measured in local currencies remained essentially unchanged year-over-year. Additionally, H&M operated with approximately 3% fewer retail locations at the end of the quarter compared to the previous year.

Breaking Down the Financial Performance

The disappointing headline figures were predominantly influenced by exceptional charges. The retailer recorded SEK 679 million in restructuring costs associated with modifications to its sales markets and centralized sales organization structure.

Excluding these one-time expenses, adjusted operating profit advanced 11% to SEK 6.59 billion, representing a margin of 12% compared to 10.4% in the corresponding period last year. According to Morgan Stanley’s analysis, this underlying performance exceeded consensus expectations by approximately 3-4%.

The company’s gross margin expanded to 56.6% from 55.4% year-over-year, surpassing the projected 56.5%.

Net income remained stable at SEK 3.96 billion. Earnings per share showed marginal growth, increasing to SEK 2.49 from SEK 2.48. Operating cash flow demonstrated strong momentum, climbing 24% to SEK 10.59 billion.

Inventory holdings decreased 10% on a year-over-year basis to SEK 34.94 billion. After accounting for currency fluctuations, the reduction stood at 2%.

For the initial six months of 2026, net sales amounted to SEK 104.44 billion, down from SEK 112.05 billion in the prior year. Excluding exceptional items, operating profit for the half-year period grew 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 concerns regarding the second-half outlook. It highlighted decelerating constant-currency revenue momentum and diminishing benefits from cost reduction programs, as efficiency gains from margin improvements and overhead reductions begin to moderate.

The firm also emphasized that technology spending is scheduled to accelerate from the second half forward, while raw material and transportation costs continue to present challenges.

H&M indicated that markdown levels in the third quarter should approximate those from the same period last year. Sales for June in local currencies are projected to show no year-over-year change.

Throughout the quarter, H&M launched its inaugural store in Rio de Janeiro and renovated its landmark Hamngatan location in Stockholm. The retailer has scheduled its first Paraguay store opening for the second half of 2026, with plans to enter Argentina in 2027.

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