H&M, one of the world’s largest clothing retailers, is expected to finally convince analysts it can achieve its target of a 10% profit margin when it reports second-quarter results next Thursday.
Deutsche Bank said the Swedish retailer is “set to report another strong set of numbers” for the second three months of the financial year and expects margin recovery to be in the focus.
During the “dark days of early 2023”, management launched plans to reach a 10% pre-tax profit margin, which at the time was “largely dismissed by investors”.
However, in just over a year the level of gross margin recovery has been greater than Deutsche Bank predicted.
Helped by robust cost control and inventory management, the retailer has seen a stronger earnings profile which is anticipated to see analysts finally reflect the margin target in their estimates.
Deutsche Bank added: “The major part of the investment case that was missing was foreign exchange (FX) sales growth.
“This looks set to return in 2Q and we now forecast 4% FX for the quarter with a 13.1% EBIT margin giving earnings per share of SEK 3.55.”
Ahead of the results next week, the German bank has lifted its share price target from SEK 155 to SEK 165 but has maintained its sell rating for the stock.