H&M Earnings: Flat Sales, but Margins Lag Targets; Shares Undervalued

No-moat H&M reported full-year results for fiscal 2024 (ending November 2024) with fourth-quarter sales rising by 3% and full-year sales up 1% in local currencies. Currency fluctuations hit annual sales by roughly 1%. Operating margin for the quarter and full year was at the same level of 7.4%, below our 8.5% expectation and still far below the company’s 10% target. However, the margin trajectory continued to improve from a low of 3.2% in 2022 and 6.9% in 2023. The market reacted negatively with shares dropping around 5% after the investor call on Jan. 30. We believe H&M is making the right strategic moves by optimizing its store network and focusing on womenswear and fashion collections. Its scale advantage over smaller peers allows it to quickly identify and adapt to fashion trends, accelerating new product releases in-store and online to meet demand. We maintain our fair value estimate of SEK 190 per share and see shares as undervalued.