H&M's Q1 earnings were weaker than expected, and we anticipate continued margin headwinds in Q2. However, we foresee revenue growth and a shift from gross margin headwinds to tailwinds starting in H2’25, leading to continued sales and margin improvements throughout 2026-27. We maintain our view that earnings growth and dividends offer a reasonable expected return and, therefore, reiterate our Accumulate recommendation with a slightly lowered target price of SEK 145 per share (previously SEK 150), reflecting lower short-term estimates.

We believe that the headwinds to gross margins, including price investments, increased markdowns, and negative impacts from external factors, have been stronger than earlier anticipated in H&M’s Q1 (Dec-Feb). As a result, we have lowered our earnings estimates. However, we still see earnings growth and dividends offering a good expected return, which, coupled with the declining valuation since our last research update (share price -9%), keeps the risk/reward ratio on the right side. Consequently, we reiterate our Accumulate recommendation but lower our target price to SEK 150 per share (prev. SEK 160) due to lower estimates.

H&M's Q4 results beat our forecasts thanks to a strong gross margin. However, we kept our estimates largely intact and continue to see sales and margin improvement in 2025-26. We see earnings growth and dividends offering a reasonable expected return.

H&M will report its Q4’24 (September-November) results on Thursday at 8:00 am CEST. We expect slightly positive revenue growth both in local currencies and reported terms. However, we expect EBIT to decline year-on-year due to a slightly lower gross margin and stable opex/ sales. We expect a positive top line development for the beginning of the fiscal year 2025.

We believe consumer demand has remained subdued in H&M’s Q4 (Sep-Nov), although the strong September should support growth. We have lowered our margin assumptions for 2025 and beyond.