European investment bank Berenberg has reiterated its sell rating and 135-kronor price target on Swedish fashion retailer H&M, arguing that the stock still looks expensive even after a reassuring September sales update and a better-than-expected fiscal third-quarter profit.
The bank's caution is not about the quarter H&M just delivered, but about where profitability lands a few years down the road. Berenberg trimmed its fiscal 2027 (FY 2027E) gross margin forecast to 53.2% from 53.6%, a level that sits below the Visible Alpha analyst consensus of 53.9% and well below H&M's own target range of 54% to 55%.
Why the margin outlook matters
Gross margin—the difference between what H&M earns from sales and what it costs to produce those goods—is a key profitability metric for retailers. A lower gross margin means less money left over to cover operating expenses and generate profit. Berenberg's revised estimate implies that H&M may struggle to hit its own profitability goals, which could weigh on earnings per share and, ultimately, the stock price.
The bank's decision to keep a sell rating and a 135-kronor target suggests it believes the current share price already reflects the company's near-term strengths, such as the September sales uptick and the fiscal third-quarter profit beat. In other words, the good news is priced in, and the risk of future margin compression is not.
H&M has been working to improve its product assortment and supply chain efficiency, but the retail environment remains challenging. Rising input costs, currency fluctuations, and intense competition from fast-fashion rivals like Zara (owned by Inditex) and online players such as Shein continue to pressure margins across the sector.
What it means for investors
For everyday investors, Berenberg's stance is a reminder that a single strong quarter or a reassuring monthly sales figure does not always translate into long-term value. The bank is looking beyond the immediate numbers and focusing on the sustainability of H&M's profitability.
If H&M fails to achieve its 54%-55% gross margin target, its operating profit (EBIT) for FY 2027 could come in below expectations. That would likely lead to a lower share price, which is why Berenberg sees the stock as overvalued at current levels.
Investors should also note that Berenberg's 135-kronor target is not a prediction of where the stock will go, but rather a reflection of what the bank believes the shares are worth based on its financial models. If the market agrees with Berenberg's more conservative margin outlook, the stock could face downward pressure.
That said, H&M has shown resilience in recent months, and the September sales update was reassuring. The company's ability to navigate the holiday season and maintain momentum into 2025 will be closely watched.
Broader context
Berenberg's cautious view on H&M is part of a wider pattern among analysts who are questioning whether European retailers can sustain their recent margin improvements. Many companies in the sector have benefited from easing supply chain costs and strong consumer demand, but those tailwinds may be fading.
In a similar vein, Berenberg also trimmed its FY27 profit view for ICG, another company in its coverage, reflecting a broader cautious stance on earnings growth across industries.
For H&M specifically, the next key catalyst will be its full-year results and any guidance for the coming fiscal year. Investors will be looking for signs that the company can defend its margins while continuing to grow sales.
The bottom line
Berenberg's sell rating and 135-kronor target are a clear signal that the bank sees limited upside in H&M's stock. While the company's recent performance has been solid, the bank's focus on FY 2027 margins suggests that the market may be too optimistic about H&M's long-term profitability.
For investors holding H&M shares, this is a reminder to weigh short-term positives against longer-term risks. For those considering a new position, the stock may not offer a compelling entry point until the margin outlook becomes clearer.
