Northern Lights

Hennes & Mauritz (Hold, TP: SEK132.00) - No signs of turnaround yet

Weak sales at the start of the year and a need for more excessive markdowns in the near term have made us cut our 2018e EBIT by 6%. With fashion retail markets under pressure and H&M’s struggle in physical stores, we now expect 2018e to be the third consecutive year with an earnings decline. We have reduced our target price to SEK132 (140) and maintain our HOLD.

Northern Lights

Hennes & Mauritz (Hold, TP: SEK140.00) - Tough to restore confidence

The soft start to the year (unchanged Q1 sales YOY in local currencies) has triggered us to reduce 2018–2019e EPS by 3–5%. We forecast Q1 EBIT down by as much as 53% YOY, and have no rush to turn positive ahead of further key near-term challenges. We keep our HOLD recommendation, but have lowered our target price to SEK140 (146) to reflect our new estimates. The Q1 results are due on 27 March at 08:00 CET.

Northern Lights

Hennes & Mauritz (Hold, TP: SEK146.00) - Ahead of Q1 sales report

We expect Q1 sales growth of 1.5% YOY, despite c8% net new stores implying continued highly negative LFL. We have lowered 2018e EPS by 3%, mainly to reflect higher input costs (cotton price). Although we find many negatives priced into the shares, we see no rush to turn positive ahead of a very challenging H1 2018e. We have reduced our target price to SEK146 (150) and maintain HOLD.

Northern Lights

Hennes & Mauritz (Hold, TP: SEK150.00) - Either you are in or diluted

Although weak Q4 earnings were slightly above consensus, focus intensified on the negatives. 2018 started weak (sharp LFL decline) and inventories remain high. H&M confirmed the need for high investments (digital and store remakes) and is looking into a “dividend reinvestment plan”, offering new shares as an alternative to dividends (not an obligation though). We have cut our 2018e EPS by 8% and our target price to SEK150 (175) and retain our HOLD.

Small steps so far

We believe H&M’s outlook is improving thanks to stabilising inventory, better support from online sales, the potential payoff from growth initiatives, and an FX tailwind next year. Q3 inventory was still high but commitments with suppliers were down by double digits, according to the company. While we have trimmed our estimates we reiterate our BUY recommendation and SEK242 target price.

Fashioning a better 2018

We have upgraded H&M to BUY (HOLD) and raised our target price to SEK242 (225), on our more positive view than consensus on 2018e margins and poor share price performance YTD. We expect a gross margin boost from the weaker USD, tighter cost control, and better support from online sales (12% of 2018e group sales) to yield 20% EPS growth in 2018e after flat EPS in 2017e. In our view, consensus has bottomed out and a soft Q3 should now be discounted in the share price.