H&M reported second-quarter results Thursday that delivered exactly the margin expansion its multi-year restructuring program promised while falling short of analyst expectations on the revenue lines that investors in a retail turnaround typically need to see moving in the other direction. Net sales for the three months ended May 31 totaled 54.83 billion Swedish kronor, down 3.3% from the same period a year earlier; in local currencies, the decline was approximately 1%. Reported revenue came in below analyst forecasts. Operating profit held flat at 5.91 billion kronor, missing consensus estimates, as one-off restructuring costs of 679 million kronor tied to organizational changes in sales markets and central operations absorbed gains from the underlying business. Excluding those one-time items, adjusted operating profit rose 11% to 6.59 billion kronor, and the adjusted operating margin expanded 160 basis points to 12.0%. Shares fell approximately 2.6% in Stockholm trading. NEWSCENTRAL reads the Q2 split narrative – stronger underlying profitability, weaker sales – as the defining tension of H&M’s current position: the company is executing the financial restructuring correctly and the commercial recovery is lagging behind it.
CEO Daniel Ervér acknowledged the gap between plan and performance without deflecting from it – a communication posture that NEWSCENTRAL notes contrasts favourably with the tendency of retail CEOs in turnaround situations to qualify every shortfall with structural explanations. Sales in the quarter were somewhat lower than planned, he stated, while characterizing profitability and inventory productivity as developing in line with long-term objectives. The inventory disclosure is analytically important: Ervér noted that more rigorous inventory management has, in some cases, affected the company’s ability to fully meet demand – an admission that the disciplined stock reduction the company has been pursuing as a structural improvement has created near-term availability gaps in specific product categories. Gross margin improved to 56.6% in the quarter, up 1.2 percentage points year-on-year, reflecting cleaner inventory with fewer markdowns and favorable purchasing cost conditions. That gross margin level, if sustained, is structurally sound; the question is whether the supply chain discipline that produced it can coexist with the availability improvements that would translate margin gains into sales growth.
Regional performance varied in ways that illuminate the broader consumer environment facing European apparel retail. Western Europe was the most challenged geography, with sales declining 3% in local currencies as shoppers in Germany and the United Kingdom pulled back amid deteriorating consumer sentiment. Southern Europe was notably more resilient, with sales rising 5% in local currencies – a divergence that reflects the uneven economic conditions across the eurozone and the UK. Sales in North and South America declined 1% in local currencies. Online sales now account for just over 30% of group revenue, a share that has been growing steadily as the company reduces its physical store footprint. The network stood at 4,038 locations at the end of May, down from 4,166 twelve months earlier, with the company accelerating its rationalization pace: full-year plans call for approximately 90 new openings and 170 closures, a net reduction of 80 stores that exceeds the 80 openings and 160 closures projected in March. Freddy Miller, Senior Analyst, observes that the accelerated closure pace, combined with the Brazil entry and forthcoming expansions into Paraguay and Argentina, describes a company simultaneously contracting in established markets where productivity was low and selectively expanding in underpenetrated markets where per-store economics justify the investment – a sensible allocation logic that requires sustained execution discipline to deliver.
The first-half picture tells a similar story. Net sales for the six months ended May 31 totaled 104.44 billion kronor, down 6.79% from the same period a year earlier, while net income rose 2.77% to 4.67 billion kronor. Operating profit excluding one-time costs rose 14% for the half, and return on capital employed reached 17.4% on a rolling twelve-month basis, nearly tripling from the 6% reported in early 2023 when the current restructuring program began in earnest. Cash flow from operating activities rose 24% in Q2 to 10.59 billion kronor – a measure of operating quality that reflects the inventory efficiency improvements more precisely than the headline revenue figures. For NEWS CENTRAL, the most honest assessment of H&M’s current position is that the financial foundation being rebuilt through three years of difficult operational restructuring is now genuinely stronger than it was, and that the commercial momentum required to justify the multiple expansion investors need has not yet arrived. The third quarter guidance – sales in June expected to be on par with the same month last year – confirms that the trajectory for the second half of 2026 is stabilization rather than acceleration.