H & M Hennes & Mauritz AB (publ)

RBC Capital Markets has cut profit forecasts for H&M and JD Sports Fashion PLC, citing sluggish consumer demand in Germany as a growing risk for European retailers. The bank lowered its earnings per share forecasts for H&M by 2% to 3% for the 2026 and 2027 financial years, citing lower like-for-like sales assumptions and higher operating costs, and reduced its price target to SEK175 from an unspecified previous level while maintaining a sector perform rating. For JD Sports, RBC cut earnings forecasts for the 2027 and 2028 financial years by 6% and lowered its price target to 95 pence from 100 pence, after the retailer reported softer-than-expected second-quarter trading driven by slower US footwear sales. RBC noted that store sales in German fashion retail have fallen almost 4% year to date while online sales have risen 4% year on year, a trend it expects to continue given Germany's e-commerce penetration lags other major markets. The bank said Next and Zalando are best placed to benefit from the online shift, while Action and H&M carry more exposure to German stores, and JD Sports plans to close about 40% of its roughly 100 German stores as parts of the market appear to favour single-brand retailers over multi-brand stores.

H&M is closing 128 stores worldwide as part of a global reset of its physical retail footprint, tied to a broader push starting in 2025 to prioritise stronger locations and expand its omnichannel model. Capital is being redirected toward higher productivity stores and digital capabilities to better align with changing shopper behaviour. The store base is 3% smaller than a year earlier, yet earnings across both the second quarter and first half of 2026 were broadly in line with the prior year, suggesting cost measures and a tighter focus on full price sales helped offset softer revenue. The company plans roughly 90 new store openings as it balances closures with the performance of its online and new format stores.

H&M used its second-quarter 2026 earnings call to emphasize improving profitability while acknowledging that sales recovery remains incomplete. The operating margin reached 12% excluding one-time costs, and the gross margin rose 120 basis points to 56.6%, but revenues of $5.90 billion and earnings per share of $0.05 missed the consensus estimate. Management attributed the muted sales to weak Western European demand, logistics disruptions, and supply gaps, with June expected to be on par with last year. The company also outlined organizational changes, including removing a regional layer and eliminating the separate online sales organization, which incurred SEK 679 million in restructuring costs. Looking ahead, H&M plans to upgrade digital infrastructure and accelerate store improvements, while maintaining its full-year guidance for low single-digit SG&A growth in local currencies.

H&M closed 136 stores over the past six months and shut down all standalone Monki stores by the end of 2025, folding the brand into Weekday. The retailer has closed more than 600 stores since 2022, ending the first half of 2026 with 4,038 locations. Sales decreased 1% in the first six months, but profitability improved, and CEO Daniel Ervér said the company is on track with its goals. The move reflects a broader shift to simplify the business and focus resources on fewer concepts amid rising competition from digital rivals like Shein and Temu.

H&M reported net sales of Skr54.82 billion for the second quarter ended 31 May 2026, down from Skr56.71 billion a year earlier. Gross profit fell to Skr31.04 billion from Skr31.42 billion, but gross margin improved to 56.6 percent from 55.4 percent. Operating profit was nearly unchanged at Skr5.913 billion, while operating margin edged up to 10.8 percent from 10.4 percent. Profit for the period was Skr3.962 billion, with earnings per share rising marginally to Skr2.49 from Skr2.48. The group ended the quarter with 4,038 stores worldwide, about 3 percent fewer than a year earlier, and plans to open its first store in Paraguay in the second half of 2026 and enter Argentina in 2027.

H&M reported net sales of 104.4 billion Swedish krona for the first half of its financial year, a 3% decline from the same period a year earlier, as efforts to tighten stock control left some stores unable to fully meet shopper demand. Sales in Western Europe, the company’s largest market, fell 5% year-on-year. Chief executive Daniel Erver said sales in the latest quarter were somewhat lower than planned, adding that tighter inventory management had in some cases affected the ability to meet demand. He noted that the company sees potential to further increase precision to create a better balance between availability and demand, and that improvements made in recent years have strengthened profitability and simplified operations.