Goldman Sachs Lowers H&M Target Price to SEK 150, Maintains Sell Rating

Overview

Goldman Sachs issued an earnings forecast update for H&M, primarily reflecting the latest developments in Q2 2026 sales growth slowdown and margin pressure. The report lowered the 2Q26 like-for-like growth forecast from +1% to +0.5%, mainly due to weakening demand patterns in the European apparel industry since March. Simultaneously, gross margin expectations were also reduced due to increased temporary promotional activities and rising air freight costs. Considering these combined effects, Goldman Sachs lowered the 12-month target price from SEK 160 to SEK 150, implying approximately 8.6% downside, while maintaining the Sell rating.

Core views

Significant sales growth slowdown: Goldman Sachs sharply reduced the 2Q26 constant currency sales growth forecast from +2% to +0.6%, with like-for-like growth declining from +1% to +0.5% and store space contribution dropping from +1% to +0.1%. This adjustment reflects the overall weakening demand trend in the European apparel industry since March, with German consumer confidence charts showing continued recent declines and German apparel store sales year-on-year reaching -6% in April 2026. Increased margin pressure: The 2Q26 gross margin expectation was lowered from 57.4% to 56.6%, primarily affected by two factors. First, the company increased temporary promotional activities to clear inventory, and second, air freight costs rose. The full-year FY26 gross margin year-on-year growth expectation was reduced from +162 basis points to +115 basis points. Comprehensive earnings forecast reductions: The 2Q26 EBIT forecast was cut by 12% to SEK 6.4 billion (previously SEK 7.3 billion, market consensus SEK 6.7 billion). The full-year FY26 EBIT was lowered from SEK 22.3 billion to SEK 20.3 billion (market consensus SEK 19.7 billion), corresponding to constant currency sales growth decreasing from +1.7% to +0.7% and operating expense growth declining from +1.2% to +1%.

Analysis framework

Goldman Sachs employs a top-down analytical framework, starting with the macroeconomic consumption environment, using German consumer confidence indices and apparel store sales year-on-year data to validate industry demand weakening trends. Then, from a volume-price breakdown perspective, it analyzes sales growth drivers, decomposing growth into like-for-like growth and store space contribution dimensions. On the profitability side, the report uses a dual-factor analysis of gross margin and operating expense ratio to identify the squeeze effect on profitability from increased promotional activities and rising freight costs. Finally, through a DCF cash flow discount model, it translates earnings forecast changes into valuation and target price.

Methodology notes

• valuation methodDCF cash flow discount

  DCF cash flow discount valuation

  Calculating enterprise value by forecasting the company's future free cash flows and discounting them at the weighted average cost of capital is Goldman Sachs' core method for estimating H&M's 12-month target price. This report assumes a WACC of 10.6% and a perpetual growth rate of 3.0%.

• industry/industrial analysis frameworkvolume-price breakdown

  sales growth volume-price breakdown

  Decomposing sales growth into like-for-like growth (LFL) and store space changes (Space) drivers helps identify whether growth comes from existing store efficiency improvements or expansion-driven. This report shows H&M's growth mainly relies on like-for-like rather than expansion.

• cycle and sentiment frameworksentiment inflection analysis

  consumption sentiment inflection analysis

  Tracking industry sentiment changes through consumer confidence indices and store sales year-on-year data to judge whether demand-side inflection points appear. This report shows European consumer confidence has continued to weaken since early 2026, with no clear recovery signals yet.

• company fundamentals and financial frameworkearnings quality analysis

  gross margin and operating expense ratio analysis

  Assessing company earnings quality and sustainability by analyzing gross margin change drivers (promotional intensity, freight costs, etc.) and operating expense ratio trends. This report shows increased promotions and rising costs jointly squeeze margins.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Hennes & Mauritz (HMb.ST)

  direct coverage target, earnings forecasts and target price lowered

  Strengths

  Increased product availability post supply chain normalization, advancing omnichannel integration (same/next day delivery, in-store find, scan & buy, click & collect full rollout)

  Weaknesses

  Weak European consumer demand, increased promotions squeezing gross margins, rising air freight costs

  Comparison

  Report covers peers including Inditex, Zalando, adidas, Puma among other European apparel retailers but does not provide detailed cross-company comparisons

  Risks

  Continued weakening of consumer confidence, promotional intensity exceeding expectations, further rise in freight costs

Key data

• 2Q26 sales growth forecast+0.6%Lowered from +2%, reflecting industry demand weakening
• 2Q26 like-for-like growth+0.5%Lowered from +1%
• 2Q26 gross margin56.6%Lowered from 57.4%
• 2Q26 EBITSEK 6.4 billionCut by 12%, previously SEK 7.3 billion
• FY26 EBITSEK 20.3 billionLowered from SEK 22.3 billion
• FY26 sales growth+0.7%Lowered from +1.7%
• 12-month target priceSEK 150Lowered from SEK 160
• valuation multiple16.2x EV/NOPATCorresponding to FY27E, or 17.2x P/E

Impact & implications

For H&M, this forecast downgrade reflects increasing short-term operational pressures, especially as weak demand in core European markets may persistently affect H1 2026 performance. While increased promotional activities help clear inventory, they erode gross margins, requiring a balance between sales volume and profitability. For investors, the Sell rating and 8.6% downside suggest current stock prices may not yet fully reflect earnings downgrade risks. The report mentions that if the USD weakens against the EUR, it could help FY26 group EBIT margin recover to above 10% by improving procurement gross margins, which is a potential positive catalyst.

Risks

• Continued decline in European consumer confidence, further weakening in core markets like Germany
• Promotional activities exceeding expectations, amplifying margin pressure
• Continued rise in air freight costs
• USD/EUR exchange rate volatility affecting procurement costs

What to watch

• 2Q26 actual sales growth and like-for-like growth data
• Gross margin trends and promotional activity intensity
• Subsequent movements in European consumer confidence indices
• USD/EUR exchange rate changes' impact on procurement costs
• Inventory clearance progress and current product availability