Morningstar

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

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Securities In This Article
Hennes & Mauritz AB Class B
(HM B)

We are maintaining our fair value estimate of SEK 179 per share for no-moat Hennes & Mauritz HM B 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, with inventory being down 16% at constant currencies despite positive sales growth.

We believe the firm still benefits from some scale and strong brand recognition in its top markets and efforts to speed up supply chain and control costs should, longer term, improve the top and bottom lines. Shares look attractive.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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About the Author

Jelena Sokolova, CFA

Senior Equity Analyst
More from Author

Jelena Sokolova, CFA, is a senior equity analyst, Europe, for Morningstar*. She covers the consumer discretionary/luxury goods sector. She is a lead analyst for the sector, performing in-depth fundamental analysis and DCF modeling resulting in investment ideas tailored to long-term investors and analyzing the durability of company competitive advantages based on Morningstar proprietary “moat” methodology. Since 2023 she is a member of the Moat Committee, assessing competitive strengths across sectors.

Before joining Morningstar in 2016, Sokolova worked as a senior equity analyst at CE Asset Management in Zurich covering European large caps. Having started as an analyst for CE Asset Management office in Riga in 2010, Sokolova got promoted to a Senior Analyst position in 2013 covering European Large cap stocks with a generalist focus, reporting to CE Asset Management Investment Committee.

Sokolova holds a bachelor’s degree in Business Administration from the Banking Institution of Higher Education, Riga. She also holds a a master's degree in international business from Riga International School of Economics and Business Administration. She also holds the Chartered Financial Analyst® designation.

* Morningstar UK Ltd (“Morningstar”) is a wholly owned subsidiary of Morningstar, Inc

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