H&M Q1 on Wednesday: Negative revenue growth but clearly higher margin expected

H&M will report its Q1’24 (Dec-Feb) results on Wednesday at 8:00 am CET. We expect revenue to be down around 3% both in local currencies and SEK, but EBIT to improve significantly given the fairly weak comparison figures and support from gross margin improvement. The company has said it is targeting a 10% EBIT margin in 2024, which seems optimistic to us as we expect only 8.4%, in line with consensus.

Revenue expected to decline 3 % both in local currencies and SEK

From Q1 onwards, H&M will only publish its quarterly revenue figures with the full earnings report and not beforehand, as has been the case until now. However, the company announced in its Q4 report the revenue for Dec-Jan, i.e., 2/3 of the quarter, which was down 4% in local currencies. We expect the additional leap year day in February to slightly improve performance and therefore forecast a 3% decline in Q1’24. We do not expect a significant impact from currencies, as the SEK has stabilized and therefore we forecast the development in SEK and local currencies to be roughly the same.

Margins expected to improve clearly from low comparison levels

H&M’s margins were still low in the comparison period, only around 1% at EBIT level or slightly negative when excluding a one-off related to Sellpy and 47% at gross margin level. Given the weak levels, we expect a significant improvement to around 3% EBIT margin, driven by a recovery of the gross margin to 50.1%. H&M's efficiency program should also help to keep opex/sales on a downward trend.

10% EBIT margin target likely to be postponed from 2024

H&M does not give financial guidance but has said that it is targeting a 10% EBIT margin in 2024. We forecast an EBIT margin of 8.4% in 2024, so we would not be surprised to see more cautious comments around the margin target or pushing it forward to, e.g., 2025 or targeting it in end-2024 rather than for the full-year. Peers have communicated a stable or supportive cost and margin environment in 2024, which we see as supportive for H&M's expected margin improvement. We expect revenue to be flat in local currencies in 2024, so revenue growth will need to pick up after the decline in Q1.