Analyst firm Bernstein is staying cautious on fashion retailer H&M as it heads into a tougher second half of the fiscal year. The broker argues that the one-off supply chain gains that boosted margins over the past year have largely run their course, while demand in key markets like the US and Germany remains weak.
Bernstein kept its underperform rating and a 130-kronor price target on the stock, signaling that it sees more downside than upside from current levels. The firm also trimmed its near-term sales forecast, expecting fiscal third-quarter growth of negative 1.5%, well below the 1.8% consensus view among analysts.
What's behind the caution?
H&M has had a solid year, helped by operational fixes in its supply chain that lifted gross margin by more than 1.2 percentage points. Those improvements included better inventory management and cost controls. But because those gains are now being compared against already-improved results, that tailwind is fading.
That leaves demand as the main driver of earnings, and Bernstein sees little to cheer about there. The broker notes that the company finished June on a soft note, and that consumer spending in the US and Germany — two of H&M's largest markets — remains sluggish. That is a concern for a retailer that relies on discretionary spending, which tends to be the first area households cut back when they feel pressure from inflation or higher interest rates.
Bernstein expects sales growth to hover around flat to slightly down in the coming quarters. The firm's forecast for the fiscal third quarter is particularly bearish: it sees a 1.5% decline in sales, compared with the consensus estimate of 1.8% growth. That gap suggests that other analysts may need to trim their own forecasts, which could put further pressure on the stock.
What it means for investors
When a price target stays the same but the earnings path shifts, the debate often moves from “are profits rising?” to “what’s the right price to pay for those profits?” That is essentially a valuation-multiple question — often discussed as the forward price-to-earnings ratio, which compares today’s share price with expected earnings.
Bernstein’s concern is that, with one-off margin help fading and sales still soft, analysts could start trimming Q3 and Q4 forecasts. If those estimates slide, the stock typically needs investors to accept a higher valuation multiple just to hold the same price target. And in a choppy demand backdrop, markets often do the opposite: they pay less for each krona of expected profit.
Even so, Bernstein only made small tweaks to its longer-term forecasts. It lifted its fiscal 2026 adjusted earnings per share estimate to 7.61 kronor from 7.52, but cut its fiscal 2027 estimate to 8.40 from 8.60. That suggests the broker sees the current softness as more of a near-term issue, but it still wants to see clearer strategic moves from H&M that can lift sales or protect profitability once the “easy” margin work is over.
For everyday investors, the key takeaway is that H&M's stock may face headwinds in the coming months. The company's recent margin improvements were largely one-off in nature, and without a pickup in demand, earnings growth could stall. That could make the stock less attractive, especially if other analysts follow Bernstein's lead and cut their forecasts.
Investors should also keep an eye on how H&M's competitors are faring. In a similar vein, KB Home recently beat margin forecasts, but RBC warned that weak orders could pressure revenue, highlighting the broader theme that one-off gains can only carry a company so far.
Bernstein's stance also echoes a broader trend in retail: companies that benefited from supply chain fixes are now facing a tougher comparison period. As those gains fade, the focus shifts back to demand, and that is where the uncertainty lies. For H&M, the next few quarters will be crucial in determining whether the company can reignite sales growth or whether it will need to rely on further cost-cutting to protect profits.
In the meantime, investors may want to watch for any strategic announcements from H&M, such as new store openings, e-commerce initiatives, or pricing changes. Bernstein's analysts argue that they need to see clearer moves that can lift sales or protect profitability before they become more bullish on the stock.
