RBC Capital Markets has trimmed its earnings forecasts for fashion retailer H&M, citing expectations of softer like-for-like sales and higher costs in the fiscal second half. The bank's updated view, shared in a research note on European retailers, reflects a more cautious outlook for the Swedish fast-fashion giant even as some bright spots remain.
What's behind the forecast cut?
RBC now expects H&M's like-for-like sales—a key retail metric that measures revenue from stores open at least a year—to grow at a slightly slower pace than previously anticipated. At the same time, the bank sees expenses climbing in the second half of the fiscal year, which runs from March through February for H&M.
Specifically, RBC projects that H&M's fiscal third-quarter sales will rise 1% year over year in constant currency terms, after June came in flat. The bank notes that easier comparisons later in the quarter could provide a modest boost. Constant currency figures strip out the impact of exchange-rate movements, giving a clearer picture of underlying performance.
The cost pressure is not unique to H&M. Retailers across Europe have been grappling with higher input costs, from raw materials to logistics, even as inflation has eased from its peaks. For H&M, the bank's forecast implies that these headwinds will weigh more heavily in the second half than previously assumed.
What's helping H&M?
Not everything is moving in the wrong direction. RBC points to improving gross margins—the difference between what H&M pays for its goods and what it sells them for—as a partial offset. Better inventory management and fewer markdowns can help margins, and the bank sees that trend continuing.
Steady supply chains are another positive. After years of disruptions, from pandemic-era shutdowns to shipping bottlenecks, H&M's supply chain appears to be operating more predictably. That reduces the risk of costly delays or excess inventory, both of which can hurt profitability.
RBC also notes that early-summer heat could work in H&M's favor. If shoppers view the retailer as a go-to destination for warm-weather clothing, a hot start to summer could lift sales. However, prolonged heat later in the season is less supportive, as it may delay demand for autumn collections.
What it means for investors
For everyday investors, this forecast revision is a reminder that even well-known global brands face headwinds that can affect their stock price. H&M shares have been under pressure this year as investors weigh the company's ability to grow sales in a competitive market dominated by online players like Zara's parent Inditex and fast-fashion disruptors such as Shein.
The revision also highlights the importance of looking beyond headline numbers. While sales growth may be softer, improving margins and stable supply chains could still support profitability. That's why analysts often adjust their earnings estimates based on a mix of factors, not just revenue.
Investors holding H&M stock—or considering it—should watch the company's next earnings report for clues on whether these trends play out as RBC expects. Key metrics to track include like-for-like sales growth, gross margin, and any commentary on cost pressures.
Retail stocks in general are sensitive to consumer spending trends, which are influenced by interest rates and inflation. In Europe, the European Central Bank has been cutting rates gradually, which could eventually support consumer confidence. However, the pace of recovery remains uncertain.
For context, other companies have faced similar dynamics. For instance, PDD's recent earnings beat was overshadowed by spending concerns, showing how investors react to cost increases even when profits look good. And in the broader market, Germany's Q2 growth showed how exports can offset energy costs, a reminder that multiple factors shape economic outcomes.
RBC's note is just one analyst's view, but it reflects a broader sentiment that H&M's path to growth is not without obstacles. The company has been working to refresh its brand, improve its online offering, and expand its higher-margin lines, but these efforts take time to show results.
The bottom line
RBC's forecast trim is a cautious signal for H&M, but it's not a dramatic downgrade. The bank still sees the company generating growth, just at a slightly slower pace than before. For investors, the key takeaway is to stay informed about the factors driving a company's performance—sales, costs, and margins—rather than reacting to a single analyst move.
As always, no single forecast is definitive. H&M's actual results could come in better or worse than RBC expects, depending on how the second half unfolds. Keeping an eye on the company's quarterly reports will provide the clearest picture.
