RBC Capital Markets has trimmed its near-term earnings expectations for H&M, the Swedish fast-fashion retailer, after what it described as a softer start to the fiscal third quarter. The bank cut its fiscal 2026 earnings-per-share (EPS) forecast by 3%, while simultaneously raising its fiscal 2027 estimate by 1% on more favorable currency translation effects.
RBC maintained its 175 Swedish kronor price target on H&M shares and kept a sector perform rating, signaling that the stock is expected to move in line with the broader market. The move comes after H&M's fiscal first-half update, which gave analysts a clearer picture of the company's recent performance.
Why the Forecast Change?
The downward revision for 2026 reflects two main concerns, according to RBC. First, the bank said its view on H&M's gross margin — the percentage of revenue left after subtracting the cost of goods sold — is now "less positive." Gross margin is a key profitability metric for retailers, as it shows how efficiently they manage production costs and pricing. A less positive outlook suggests H&M may face higher input costs or more aggressive discounting to move inventory.
Second, RBC noted that the start to H&M's fiscal third quarter has been "a bit soft." This could mean weaker-than-expected sales in the early weeks of the period, possibly due to shifting consumer demand, weather patterns, or competitive pressures in the fast-fashion space. For everyday investors, a soft start to a quarter often raises questions about whether a company can hit its full-year targets.
On the positive side, RBC lifted its fiscal 2027 EPS forecast by 1%, citing "more favorable" currency translation. H&M reports in Swedish kronor but generates a significant portion of its revenue outside Sweden, particularly in euros, U.S. dollars, and British pounds. When the krona weakens against those currencies, the value of overseas sales increases when converted back to kronor, boosting reported earnings. This currency tailwind is a common factor for multinational retailers and can provide a modest lift to profits without any improvement in underlying operations.
What It Means for Investors
For everyday investors, the key takeaway is that RBC sees H&M as a steady but not high-growth holding. The sector perform rating suggests the stock is fairly valued relative to its peers and the broader market. The 175 kronor price target implies limited upside from current levels, though the stock could still deliver returns through dividends or if the company outperforms expectations.
The mixed forecast — lower near-term earnings but a slight boost further out — highlights the balancing act H&M faces. On one hand, the company must navigate a challenging retail environment with potential margin pressure. On the other, currency tailwinds could provide a buffer in 2027. Investors should watch H&M's upcoming quarterly reports for signs of whether the soft start to Q3 is temporary or part of a broader trend.
H&M operates in a highly competitive sector alongside rivals like Zara (owned by Inditex) and fast-fashion newcomers such as Shein. The company has been investing in sustainability initiatives and supply chain improvements to differentiate itself, but these efforts take time to translate into financial results.
For context, analyst forecast changes like this are common after a company provides an update. RBC's move is relatively modest — a 3% cut to 2026 EPS and a 1% increase for 2027 — suggesting the bank sees no major red flags, just a slightly different path to earnings growth.
In a similar vein, other analysts have recently adjusted forecasts for consumer-facing companies. For example, Needham trimmed its forecasts for Constellation Brands after softer Q1 expectations, reflecting broader caution in the consumer sector. Meanwhile, UK firms have turned cautious as the CBI outlook hit its lowest since December 2025, signaling that businesses across Europe are bracing for slower demand.
Looking Ahead
H&M is scheduled to report its full fiscal third-quarter results later this year, which will provide a clearer picture of whether the soft start was a blip or a trend. Investors will also watch for updates on gross margins, inventory levels, and any changes in consumer spending patterns.
The broader retail sector faces headwinds from inflation, higher interest rates, and shifting consumer preferences toward experiences over goods. However, H&M's strong brand, global footprint, and focus on affordability could help it weather the storm better than some peers.
RBC's decision to keep its price target unchanged suggests the bank believes the stock's risk-reward profile is balanced. For investors, the message is clear: H&M is a solid, well-established company, but near-term earnings may be under pressure, and patience may be required for the currency benefits to materialize in 2027.
