H&M Q4 next Wednesday: Significant year-on year improvement expected

H&M will report its Q4'23 (Sep-Nov) results on Wednesday at 8:00 am CET. The company has already reported its sales and we expect EBIT margin to be 8,5 %, in line with the ~8 % seen in Q2-Q3, but a significant improvement year-on-year. We expect a stable dividend and the company to reiterate the 10 % EBIT margin target for 2024.

Sales down 1 % in local currencies and excluding exited Russia and Belarus

As usual, H&M reported its sales figures ahead of the full earnings report and hence we already know that Q4 sales were flattish in SEK, but down 4 % in local currencies, although excluding Russia and Belarus the decline in local currencies was only 1 %. You can find our comments of this in our latest report.

Margins expected to improve clearly year-on-year and slightly quarter-on-quarter

H&M’s margins were very low in the comparison period, only around 1 % at EBIT level, compared to which we expect a notable improvement to 8,5 %. This is driven by both improvement in gross margin to 52,0 % (Q4’22: 49,7 %), which was supported by lower input cost increases, as well as lower opex/sales thanks to H&M’s ongoing efficiency program. H&M’s EBIT margin was already around 8 % in Q2-Q3 and compared to that, the Q4 is more a continuation of a trend than an improvement.

Outlook is likely to remain towards 10 % EBIT margin in 2024

H&M does not give financial guidance but has said that it is targeting a 10 % EBIT margin in 2024, which we expect it to reiterate in the Q4’23 report. We are forecasting a 9,1% EBIT margin for 2024, so we would not be surprised to see more cautious comments around the margin target, but we think it is more likely that the company will maintain the target at this point of the year. We are expecting flattish sales development in local currencies in 2024 so any indication to the contrary would be of interest to us. H&M’s EPS will increase strongly for 2023, but we believe the company will maintain its dividend at 6,50 SEK per share as our adjusted EPS forecast for 2023 is only around 6 SEK.