Hennes & Mauritz posted stronger-than-expected third-quarter earnings on Thursday, sending its shares sharply higher as investors welcomed signs of progress in the Swedish retailer’s turnaround plan.
Shares rose as much as 11% in early European trading, buoyed by evidence that management’s efforts to reshape the business through new collections, tighter cost control, and supply chain improvements are beginning to pay off.
The company is working to boost sales by investing in product ranges, upgrading digital channels, and repositioning its stores.
It has also expanded collections at different price points and taken steps to bring more manufacturing closer to its main markets in a bid to reduce lead times and improve logistics.
Stronger customer response drives profit growth
Chief Executive Daniel Erver said earnings improved thanks to a stronger product offering, higher gross margin, and tighter cost discipline.
The company’s fall collections have been well received, with sales in September expected to match the same period last year in local currencies.
That compares with an 11% rise a year earlier.
Despite the operational progress, Erver cautioned that the external backdrop remains challenging.
“While we continue to drive our plan forward, the world around us remains uncertain,” he said, pointing to geopolitical tensions, cautious consumers, and the impact of US President Donald Trump’s tariff policies.
Competition and logistics remain challenges
H&M faces rising competition from low-cost online retailers such as Shein and Temu, as well as its higher-end rival Inditex, owner of Zara.
Meanwhile, supply chain risks persist.
Although the company has shifted some production closer to its main markets, Asia remains a significant sourcing hub, leaving H&M exposed to shipping disruptions in regions such as the Red Sea.
To counter potential delays, the retailer has increased stock levels.
Inventory declined 9% in the third quarter, with management highlighting opportunities to further improve in the final quarter through a more flexible supply chain and in-season purchasing.
Discounting is expected to rise in the fourth quarter, partly due to Black Friday falling earlier this year.
H&M said exchange rates and lower shipping costs should have a positive effect, although those benefits will be offset by higher tariffs.
Financial performance ahead of expectations
Gross margin came in at 52.9%, above UBS’s forecast of 51.3%.
Operating profit climbed to 4.91 billion Swedish kronor ($522.2 million), beating analysts’ expectations of 3.7 billion kronor and up from 3.51 billion kronor a year earlier.
Sales fell 3.4% to 57.02 billion kronor, broadly in line with consensus.
The operating margin improved to 8.6% from 5.9% last year, reflecting stronger profitability.
Analysts cautious on margins despite strong share reaction
Analysts welcomed the earnings beat but flagged caution around fourth-quarter trends.
Kepler Cheuvreux’s Erik Sandstedt noted that while EBIT exceeded consensus by 34%, H&M’s guidance on discounting suggests higher costs relative to sales than last year.
“H&M notes that the fourth-quarter cost of discounts as a percentage of sales will be slightly higher than last year, which the bank sees as a negative,” he said.
“Overall, we expect a positive reaction in the share in today’s trading, but it is worth noting that the share has already performed strongly and increased by around 20% in the last three months.”
RBC Capital Markets’ Richard Chamberlain said September’s flat sales outlook represented resilience given last year’s 11% growth, but warned that tariff headwinds could limit gross margin improvements.
Citi said the stock was likely to react positively to stronger margins and steady trading despite tough comparisons, noting that Eastern and Western Europe were bright spots, while Southern Europe and Asia showed weaker momentum.
Jefferies added that lower costs could support profitability over time, though reinvestment plans and tariff exposure through 2025–26 cloud the longer-term picture.
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