H&M's Profitability Should Improve in 2023 As Cost Pressures Decrease

Although we still believe that Hennes & Mauritz, or H&M, (the world’s second-largest fashion company in terms of revenue) benefits from scale advantages and brand recognition, we think these are no longer sufficient to guarantee medium- to long-term economic profits in an increasingly competitive environment, hence our no-moat rating for the company. Further, the company's responsive supply chain initiatives seem to no longer be working, as sales faltered and inventory days grew from about 117 in 2015 to 140 days in 2022, while fixed store costs are becoming an increasing drag on profitability as store traffic falls in mature markets.