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On Friday, UBS analysts downgraded Hennes & Mauritz AB (HMB:SS) (OTC: HNNMY), commonly known as H&M, from Buy to Neutral, adjusting the price target from SEK 187.00 to SEK 149.00. The revision reflects concerns over a longer-than-expected turnaround time for the fashion retailer. UBS previously held a positive view based on anticipated improvements in sales and EBIT margins, driven by the H&M brand’s successful restructuring.
The downgrade was prompted by persistent volatility and sales that fell short of expectations, casting doubt on the timeline for the retailer’s recovery. While InvestingPro data shows H&M maintains a healthy gross profit margin of 53.47% and operates with moderate debt levels, UBS analysts noted that efforts in assortment design, pricing, sourcing, and marketing, as well as the discontinuation of smaller non-core brands like Afound and Monki, showed initial promise but have not yet yielded a consistent margin recovery. Investors seeking deeper insights can access comprehensive analysis and additional ProTips through InvestingPro’s detailed research reports. The firm also cited the need for tactical promotions, which are likely to affect gross margins, and external challenges as reasons for the downgrade.
UBS has also adjusted its long-term financial model for H&M, reducing the forecast for the normalized gross margin from approximately 54% to 53% and the EBIT margin from 10% to 8.3%. The revised estimates reflect the analysts’ recalibration in light of the recent performance and market conditions. Furthermore, UBS has lowered its earnings per share (EPS) predictions for fiscal years 2025 and 2026 by 12% and 19%, respectively.
The analysts suggest that for H&M to regain profitability, it would require a sustained mid-single-digit percentage revenue growth. They also indicated that further deterioration in sales could lead to a more negative outlook. The revised price target and rating reflect UBS’s recalibrated expectations for H&M’s financial performance in the coming years.
In other recent news, Hennes & Mauritz AB (H&M) has been the subject of varied analyst opinions and forecasts. Barclays (LON:BARC) downgraded H&M from Overweight to Equalweight, adjusting the price target from SEK 185 to SEK 145. This downgrade reflects concerns about the company’s ability to drive profitable sales growth despite strategic initiatives in its womenswear segment. Barclays adjusted the earnings per share forecasts for fiscal years 2025 and 2026, decreasing them by 15% and 18%, respectively. Meanwhile, JPMorgan maintained an Underweight rating with a SEK 130 price target, anticipating a challenging earnings report for the first quarter of 2025, with a predicted 19% decline in earnings before interest and taxes (EBIT).
In contrast, CFRA’s Zachary Warring reaffirmed a Buy rating with a SEK 180 price target, citing confidence in H&M’s strategic positioning and operational efficiency. H&M’s second-quarter earnings reported a normalized EPS of SEK 3.11, up from SEK 2.02 the previous year, but below consensus estimates. Revenue for the quarter increased to SEK 59.6 billion, although it fell short of expectations by SEK 166 million. The company is aiming for a 10% operating margin for the year, acknowledging external pressures that may challenge this goal.
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