Jefferies cuts H&M outlook on FX headwinds, lowers target to SEK 135

Investing.com -- Jefferies on Tuesday has downgraded its full-year earnings forecast for H&M (ST: HMb ), citing a mixed second-quarter outlook and foreign exchange headwinds that outweigh early cost of goods sold deflationary benefits.

Shares of the Swedish multinational fast fashion retailer were down 1.3% 06:24 ET (10:24 GMT).

The brokerage now projects full-year EBIT at SEK 15.9 billion, roughly 10% below consensus.

While COGS tailwinds are expected to support performance in fiscal years 2025 and 2026, aligning mid-term expectations with broader market views, the near-term picture remains muted.

For Q2 through Q4, Jefferies forecasts ex-currency sales growth of 0.5%, 3%, and 2%, respectively, while reported sales are expected to decline by 5.2%, 4.5%, and 4.5% due to adverse FX impacts.

Gross margin is projected to contract by 120 basis points in Q2 and 80 bps in Q3, reflecting pressure from freight costs, FX, and seasonal value reinvestments.

A rebound of +250 bps is forecast for Q4, driven by deflationary COGS inputs, including a weaker dollar, a near 50% drop in freight rates over six months, and a roughly 20% decline in euro-denominated cotton prices since late 2024.

Operating expenses, including FX and depreciation, are expected to decline by 2.9%, 2.1%, and 2.3% in the next three quarters, after a 1.5% increase in Q1.

About 10% of operating costs are SEK-denominated, with fixed COGS also largely tied to H&M’s domestic currency.

For the mid-term, Jefferies sees more stability. It projects ex-FX growth of 2.5% in fiscal 2025–26 and 3.0% in 2026–27.

Gross margin is expected to expand by 100 bps and 20 bps, respectively, while operating expenses are forecast to rise by 2.5% annually.

These estimates imply EBIT of SEK 17.6 billion in 2025–26 and SEK 19.2 billion in 2026–27, with EBIT margins rising from 6.9% in 2024–25 to 7.5% and 7.9% in the following years.

Jefferies also noted weakening U.S. consumer demand for Chinese e-commerce platforms, as changes to de minimis thresholds have raised landing costs. The broader margin implications for the apparel industry remain under discussion.

In line with the revised earnings view, Jefferies has lowered its price target for H&M to SEK 135 from SEK 149.

The brokerage continues to model medium-term margins below consensus and beneath H&M’s double-digit EBIT margin goal, citing competitive pressures in the value segment and uncertain 2025 demand as key risks.