Investors eye H&M’s Q2 update for signs of genuine recovery
All eyes will be on H&M’s financial results due on Thursday, June 26, as shareholders look for evidence that the high-street giant is finally emerging from its slump. After a mixed first quarter—2% revenue growth to SEK 55.3 billion (about £4.24 billion) but a sharp slowdown to 1% by the end of March—the retailer continues an ambitious turnaround strategy under new CEO Daniel Erver. Yet experts warn that headwinds from consumer caution, currency swings and lingering stock overhang may temper the March-to-May performance.
Q1 recap: growth tempered by closures and squeezed wallets
In its March update, H&M highlighted two main drags on top-line momentum:
- Store optimisation: The Group shut 40 net outlets in the quarter, part of a wider plan to streamline a global network of over 4,800 shops. Fewer stores can boost margins long-term but initially cut revenue.
- Consumer belt-tightening: Inflationary pressures and rising living costs forced many shoppers to dial back discretionary spending on fashion, particularly in Europe where H&M’s exposure is greatest.
Each of these factors contributed to the slowdown in Q1 sales growth from 2% to just 1% by late March. Investors will want to see whether fresh store rationalisation and soft consumer demand have continued to weigh on performance in the second quarter.
Weather, inventory and currency: the invisible drags on Q2
Beyond closures and cautious shoppers, analysts point to three further headwinds impacting H&M’s Q2 outlook:
- Unseasonable weather: Cooler spring temperatures in key European markets delayed the shift to summer collections, reducing full-price sales of seasonal lines.
- Inventory build-up: Stock levels carried over from March have yet to fully clear the system, risking margin-sapping markdowns if trends continue sluggishly.
- Currency translation: A stronger Swedish krona against major currencies trimmed overseas revenue when reported in SEK, masking underlying sales gains.
According to Deutsche Bank’s Adam Cochrane, these factors mean Q2 may not yet deliver a clear “turnaround” signal. He forecasts EBIT of SEK 5.6 billion, down 21% year-on-year—an improvement over Q1’s 42% decline but insufficient to convince sceptics.
Diverging analyst forecasts highlight uncertainty
City brokers are divided on the extent of recovery:
- Deutsche Bank: +1.5% sales growth, 5% drop currency-adjusted, reflecting cautious improvements.
- Jefferies: A more conservative +0.5%, pointing to waning momentum and tougher comps in key markets.
- Inditex benchmark: Zara owner Inditex saw 6% growth recently, raising questions about H&M’s market positioning versus peers.
These forecasts underscore a split view on whether the product refresh, marketing revamp and supply-chain enhancements under Erver are bearing fruit fast enough to justify renewed investor confidence.
Erver’s blueprint: leaner, faster, more digital
Since taking the helm last year, Erver has laid out a multi-pronged revitalisation plan:
- Store network right-sizing: Closing underperforming outlets to focus on profitable high-traffic locations and online fulfilment nodes.
- Supply-chain agility: Shorter lead times and more localised production to reduce waste and respond swiftly to fashion trends.
- Digital acceleration: Enhanced e-commerce platform, mobile apps and loyalty programmes to drive omnichannel growth.
- Brand portfolio optimisation: Rationalising underperforming lines while investing in & Other Stories and Cos for higher-margin segments.
Investors will scrutinise Q2 metrics on online sales penetration, average selling prices and gross margin to gauge progress on these strategic levers.
Key metrics to watch in the Q2 bulletin
When H&M publishes its Q2 results, stakeholders should zero in on:
- Sales growth by region: Is Europe stabilising? How are emerging markets performing?
- Online vs store revenue split: Signs of digital traction offsetting slower store trading?
- Gross margin recovery: Are markdown rates easing as inventory clears?
- Operating profit guidance: Does the outlook improve for H2 under Erver’s leadership?
Solid gains across these indicators would strengthen the case that H&M is back on track. Conversely, any fresh weakness could reignite concerns about the sustainability of its turnaround.
The road ahead: patience or pivot?
While some analysts caution that Q2 may not yet reflect the full benefits of Erver’s overhaul—thanks to weather, currency and stock headwinds—a smoother performance could set the stage for more encouraging H2 results. For now, shareholders must balance short-term volatility against the potential for a leaner, more digitally savvy H&M emerging in the coming quarters.