Hennes & Mauritz's Profit Still Under Pressure but Fewer Headwinds Going Forward

We are maintaining our fair value estimate of SEK 179 per share for no-moat Hennes & Mauritz as the company reported first-quarter profits still under pressure by strong a U.S. dollar and freight costs. We expect those headwinds to annualize or unwind during the course of the year. Sales in local currencies were up 3% in the quarter but 7% if operations in Russia, Belarus, and Ukraine were to be excluded. The comparison base gets easier from March onward. Smaller brands enjoyed stronger growth, up 11% at constant currencies. Gross margin was down 210 basis points due to aforementioned headwinds of currencies and freight costs, with markdowns being flattish. Selling and administrative costs were contained, growing at 3%, in line with sales in local currencies. Further on the plus side, inventory turns improved, inventory being down 16% at constant currencies despite positive sales growth.