H&M Group reported a stronger than expected second quarter on June 25, lifting operating profit even as sales held broadly flat, in a result that underscored how far the Swedish fashion retailer has shifted its strategy from chasing revenue growth toward defending margins. The world’s second largest listed clothing retailer published its six-month report at 08:00 CEST, covering the period from December 1, 2025 to May 31, 2026.
Operating profit before one-time costs rose 11 percent in the second quarter to SEK 6,592 million (about USD 680 million at roughly SEK 9.7 to the dollar), comfortably ahead of the SEK 6,384 million that analysts polled by Modular Finance had expected. The operating margin on the same basis reached 12.0 percent, against a consensus of 11.55 percent and 10.4 percent a year earlier. Net sales of SEK 54,828 million (about USD 5.7 billion) came in just below the SEK 55,142 million the market had pencilled in.
The figures reinforce a now familiar pattern at H&M under chief executive Daniel Ervér: tighter buying, fewer markdowns, a leaner store estate, and a deliberate willingness to accept softer top-line growth in exchange for healthier profitability. In his comments accompanying the report, Ervér said the company’s “long-term work has strengthened profitability and gives us good opportunities to create even more value for our customers.”
In short
- Profit beat: Second-quarter operating profit before one-time costs rose 11 percent to SEK 6,592 million, ahead of consensus, with the margin at 12.0 percent.
- Sales flat: Net sales were fairly in line with the prior year in local currencies, though a stronger krona cut the reported figure by close to 3 percentage points.
- Restructuring charge: A one-time cost of SEK 679 million tied to organisational changes pulled the reported operating margin down to 10.8 percent.
- Leaner inventory: Stock-in-trade fell 10 percent year over year, and operating cash flow jumped 24 percent in the quarter.
- Cautious guidance: H&M expects June sales in local currencies to be on par with last year and flagged a digital infrastructure overhaul for the second half.
What did H&M report for the second quarter?
The headline of the quarter was the gap between a flat top line and a sharply improved bottom line. Net sales of SEK 54,828 million were down 3 percent in Swedish kronor from SEK 56,714 million a year earlier, but the company said sales in local currencies were fairly in line with the prior year. The reported decline was driven almost entirely by currency translation, with the strengthened krona shaving just under 3 percentage points off the figure.
Gross profit edged down to SEK 31,045 million from SEK 31,425 million, but the gross margin expanded to 56.6 percent from 55.4 percent. That improvement, achieved through fuller-price selling and disciplined buying, sat at the heart of the profit beat. Selling and administrative expenses fell 1 percent to SEK 25,133 million, and excluding the restructuring charge they declined 2 percent in local currencies.
The result after tax was essentially unchanged at SEK 3,963 million, against SEK 3,962 million a year earlier, with earnings per share of SEK 2.49. The stability of the post-tax figure, despite the operating beat, reflects the SEK 679 million restructuring charge and a higher comparative tax base. Cash flow from operating activities, a cleaner read on the quarter’s momentum, rose 24 percent to SEK 10,591 million (about USD 1.1 billion).
The table below sets the quarter against both analyst expectations and the prior-year period. The adjusted operating figures are the ones management and the market are watching most closely.
| Metric (Q2, 1 Mar to 31 May 2026) | Reported | Consensus | Year earlier |
|---|---|---|---|
| Net sales (SEK m) | 54,828 | 55,142 | 56,714 |
| Gross margin | 56.6% | n/a | 55.4% |
| Operating profit, excl. one-time (SEK m) | 6,592 | 6,384 | 5,914 |
| Operating margin, excl. one-time | 12.0% | 11.55% | 10.4% |
| Operating profit, reported (SEK m) | 5,913 | n/a | 5,914 |
| Profit after tax (SEK m) | 3,963 | n/a | 3,962 |
| Earnings per share (SEK) | 2.49 | n/a | 2.48 |
On the metrics the market prioritised, the quarter was a clear beat on profit and margin and a narrow miss on sales. That combination fits the strategy H&M has communicated for more than a year, and it echoes the trajectory seen across parts of the European apparel sector, where retailers such as Debenhams have leaned on margin repair rather than volume to rebuild results.
Why did profit rise while sales stayed flat?
The mechanics of the quarter are worth unpacking, because they explain why H&M can report a double-digit profit increase on a revenue line that barely moved. Three levers did the heavy lifting: a wider gross margin, tighter cost control, and improved inventory productivity.
A stronger gross margin
The 1.2 percentage point gain in the gross margin, to 56.6 percent, is the single largest driver of the profit improvement. H&M attributed it to a higher share of full-price sales and to more disciplined purchasing, which reduces the volume of goods that eventually has to be discounted. Fewer markdowns mean more of each sale flows through to gross profit.
This is the payoff from a buying model that has been recalibrated to order more cautiously and react faster to demand. The trade-off, which management acknowledged, is that tighter availability can cost some sales when a popular item runs short. Ervér said the company sees “potential to further increase precision in order to create a better balance between availability and demand.”
Cost discipline and the restructuring charge
Selling and administrative expenses fell in absolute terms, an unusual outcome for a retailer still investing in stores and technology. The decline came despite the SEK 679 million restructuring charge, which related to organisational changes in the company’s sales markets and central sales organisations. Excluding that charge, operating expenses dropped 2 percent in local currencies.
The restructuring is part of a broader effort to flatten the organisation and move decisions closer to local markets. Management framed the changes as enhancing local relevance and creating better conditions to meet customer needs faster, rather than as a defensive cost cut. The charge is one-time in nature, which is why H&M and analysts foreground the adjusted operating figure of SEK 6,592 million.
Inventory productivity
Stock-in-trade fell 10 percent year over year to SEK 34,942 million (about USD 3.6 billion), and was down 2 percent on a currency-adjusted basis. As a share of rolling 12-month sales, inventory dropped to 15.8 percent from 16.6 percent. Leaner, fresher inventory reduces the risk of forced clearance later, which in turn protects the gross margin in future quarters.
The cleaner balance sheet also showed up in cash generation. Operating cash flow rose 24 percent in the quarter, a sign that working capital is being managed more tightly. For a fashion retailer, inventory discipline is both a margin story and a cash story, and H&M is now leaning into both.
How does the half-year picture look?
Across the full first half, the same themes hold. Net sales for the six months reached SEK 104,435 million (about USD 10.8 billion), down 1 percent in local currencies and 7 percent in kronor from SEK 112,047 million. The wider reported decline reflects the heavier currency drag over the longer period.
Operating profit before one-time costs for the half rose 14 percent to SEK 8,104 million, lifting the adjusted margin to 7.8 percent from 6.4 percent. The reported operating profit, after the second-quarter restructuring charge, was SEK 7,425 million, for a margin of 7.1 percent. Profit after tax for the half climbed to SEK 4,667 million, with earnings per share of SEK 2.95.
On a rolling 12-month basis, the gross margin stood at 54.1 percent and the operating margin at 8.5 percent, both well above the 52.6 percent and 6.5 percent recorded a year earlier. Those trailing figures are the clearest evidence that the profitability rebuild is structural rather than a single strong quarter.
| Metric | H1 2026 | H1 2025 | Rolling 12m 2026 | Rolling 12m 2025 |
|---|---|---|---|---|
| Net sales (SEK m) | 104,435 | 112,047 | n/a | n/a |
| Gross margin | 53.8% | 52.3% | 54.1% | 52.6% |
| Operating margin, excl. one-time | 7.8% | 6.4% | 8.5% | 6.5% |
| Profit after tax (SEK m) | 4,667 | 4,541 | n/a | n/a |
| Operating cash flow (SEK m) | 14,616 | 12,729 | n/a | n/a |
The half-year cadence matters because H&M’s profitability is seasonally weighted toward the spring and autumn quarters. A 7.8 percent adjusted margin at the half-year mark gives the company a firmer base heading into the important third quarter, when summer collections and the back-to-school period drive volume. For context on the demand environment those collections are landing into, recent UK retail sales data for May showed a rebound with online share climbing to 28.8 percent, a reminder that the European consumer backdrop has been uneven rather than uniformly weak.
Where did the sales come from across regions?
The regional breakdown reveals a continent-by-continent split that has become characteristic of H&M’s results. Southern Europe was the standout, while the core Western European market and the Americas lagged. The figures below show second-quarter local-currency growth, which strips out the krona’s distorting effect.
| Region | Q2 net sales (SEK m) | Q2 local-currency change | Stores at 31 May 2026 |
|---|---|---|---|
| The Nordics | 5,176 | 0% | 354 |
| Western Europe | 18,975 | -3% | 985 |
| Eastern Europe | 4,989 | -1% | 473 |
| Southern Europe | 7,484 | +5% | 564 |
| North and South America | 11,530 | -1% | 761 |
| Asia, Oceania and Africa | 6,674 | +2% | 901 |
| Total | 54,828 | -1% | 4,038 |
Europe carries the weight
Western Europe remains H&M’s largest region by sales, at SEK 18,975 million in the quarter, and its 3 percent local-currency decline was the main drag on the group. Southern Europe provided the brightest spot, growing 5 percent in local currencies, helped by a net addition of stores in the region over the half. The Nordics, H&M’s home market, were flat.
The European picture is one of maturity rather than expansion. With Western Europe under pressure and Southern Europe growing, the group is increasingly reliant on operational gains and product execution within established markets rather than on opening new space. That dynamic is playing out across the region’s listed apparel names, where consolidation moves such as the Frasers Group bid for full control of Hugo Boss point to a search for scale in a low-growth environment.
The Americas and Asia
North and South America posted a 1 percent local-currency decline, although the region continues to be a focus for new store openings, with the store count up by four over the half. H&M opened at Nordstrom in the United States during the quarter and opened its first store in Rio de Janeiro in April. Asia, Oceania and Africa grew 2 percent in local currencies, even as the store count there fell by 14 over the half.
The Asian result is notable given the softer consumer backdrop in the region. China in particular has been a difficult market for international apparel brands, and recent data showing Chinese retail sales falling 0.6 percent, the first decline since 2022, illustrates the pressure. H&M’s modest growth in the broader Asia, Oceania and Africa grouping suggests its pricing and assortment changes are gaining some traction even where the macro picture is weak.
The portfolio brands
Beyond the core H&M label, the group’s portfolio brands had a softer quarter. This grouping, which includes COS, Weekday, & Other Stories, ARKET, Singular Society and the resale platform Sellpy, saw net sales fall 7 percent in local currencies in the second quarter and 9 percent in kronor. Over the half, portfolio-brand sales were down 4 percent in local currencies and 10 percent in kronor.
Part of that decline is structural, reflecting the closure of all Monki stores during 2025 and a deliberate shift toward full-price selling. The company said sales development for the portfolio brands at the beginning of June was positive in local currencies compared with the same month last year, a tentative sign that the elevated COS and ARKET labels, which sit at higher price points than the main brand, may be steadying. The portfolio brands are central to H&M’s strategy of moving up the value chain and reducing its exposure to the most price-sensitive end of the market, where ultra-fast rivals compete most aggressively.
What is happening to the store estate?
H&M ended May with 4,038 stores, down from 4,166 a year earlier, a net reduction of 128 locations. The estate shrank by 12 on a net basis during the first half. The comparison is also shaped by the closure of all Monki stores during 2025, which removed dozens of units from the count.
Management framed the store program as optimisation rather than retreat. More stores are being updated and new ones opened in priority locations, while underperforming units are closed. The flagship on Hamngatan in Stockholm reopened during the quarter, and H&M said the sales effect from store optimisation for full-year 2026 is expected to be slightly positive, a signal that the closures are largely offset by new and refurbished space.
The shift to online
Just over 30 percent of H&M’s sales now take place online, and the company described its digital channel as continuing to grow. The retailer is steering toward an omnichannel model in which physical and digital stores work together, with customers shopping across the brand’s own apps and websites, digital marketplaces, and social media.
Physical and digital stores remain the largest area of investment in the business in 2026. That balance, between maintaining a large physical footprint and growing the online share, is the central operational challenge for H&M, as it is for most legacy apparel chains adapting to a market where roughly a third of demand has migrated to screens.
What did management signal about the second half?
The forward guidance was characteristically measured. H&M said group sales in local currencies in June 2026 are expected to be on par with the same month a year earlier. That is a cautious read after a quarter in which sales came in slightly below plan, and it kept expectations grounded rather than promising a reacceleration.
A digital infrastructure overhaul
The most concrete forward-looking commitment was a planned upgrade of the company’s digital infrastructure in the second half of the year. Ervér said the new infrastructure “will provide better decision support, faster processes and greater precision in how we plan our assortment and stock-in-trade.” In practice, that points to improved demand forecasting and allocation, the same capabilities that underpin the inventory and margin gains reported this quarter.
The investment also speaks to a longer-term ambition to compete on speed. Faster planning and replenishment would help H&M close the gap with ultra-fast rivals on responsiveness, while preserving the inventory discipline that has lifted margins. The benefits, if they materialise, would show up gradually rather than in a single quarter.
New markets and expansion
Geographic expansion continues at a measured pace. H&M said Paraguay, Malta and Azerbaijan will become new H&M markets in the second half of 2026. Its Latin American push continues with a first store in Paraguay later this year and an entry into Argentina planned for 2027, building on the Rio de Janeiro opening in the second quarter.
These additions are modest in revenue terms but strategically consistent. They extend the brand into higher-growth or underpenetrated markets while the mature European base is optimised. The pattern mirrors a wider industry tilt toward selective expansion, and toward online entry into markets where a physical store is not yet justified.
How does the quarter sit against the wider retail backdrop?
H&M’s report lands in the middle of a European retail earnings season that has been defined by margin recovery and cautious demand. Several listed retailers have followed a similar script, prioritising profitability and cash generation over headline growth, and investors have largely rewarded the discipline.
British electricals retailer AO World reported a climb in profit to around GBP 50 million as its online model scaled, while department-store group Debenhams narrowed its loss as a marketplace pivot started to pay off. The common thread is a focus on profitable revenue and tighter operations, the same recipe behind H&M’s beat.
The contrast with the ultra-fast fashion players remains the structural backdrop. Shein and Temu have continued to pressure the value end of the apparel market, and legacy chains have responded by trading down on volume ambitions and up on margin quality. H&M’s results suggest that response is working on the profit line, even if it leaves the top line treading water.
What does it mean for investors?
Before the report, H&M’s B shares had been trading in the region of SEK 166, within a 52-week range of roughly SEK 124 to SEK 194. Analyst sentiment had been cautious heading in, with the consensus rating skewed toward sell and an average 12-month price target near SEK 156, below the recent share price. That backdrop sets a relatively low bar for a profit beat to land well.
The investment case now hinges on whether the margin recovery can continue while sales stabilise and eventually return to growth. The adjusted operating margin of 12.0 percent in the quarter, and 8.5 percent on a rolling 12-month basis, shows clear progress toward a healthier profitability profile. The open question is the durability of demand, given guidance for flat June sales and a still-uncertain consumer environment.
Cash generation strengthens the case. With operating cash flow up double digits and inventory down 10 percent, H&M is funding its dividend and store investment from a stronger position. A dividend payment of SEK 5,672 million (about USD 585 million) underlines the company’s continued capacity to return cash to shareholders even through a low-growth phase.
The risks are equally clear. A retailer that is improving margins on flat volumes is, by definition, extracting more from a static base, and that approach has limits. If demand softens further, the same inventory discipline that has protected the gross margin could turn into lost sales, a tension Ervér acknowledged when he pointed to the need for a better balance between availability and demand. The cost of the second-half digital investment, and the execution risk attached to it, will also weigh on near-term reported profit even if it pays off later.
Currency is a further swing factor. The strong Swedish krona has flattered the gross margin by lowering the cost of dollar-denominated sourcing, while simultaneously depressing reported sales translated from weaker currencies abroad. A reversal in exchange rates could unwind part of the margin tailwind, which is one reason analysts focus on the local-currency trends rather than the headline kronor figures.
What to watch next
The third-quarter report, due in autumn, will be the next test of whether the margin gains can hold as the company laps tougher comparisons and absorbs the cost of its digital infrastructure investment. Early June trading for the portfolio brands was described as positive in local currencies, a small encouraging signal heading into summer.
Three things will define the next phase. First, whether the balance between inventory discipline and product availability can be improved without sacrificing margin. Second, whether the digital infrastructure upgrade delivers the promised gains in forecasting and speed. Third, whether sales can move from flat to growing in the key Western European and American markets.
For now, H&M has delivered the result its strategy was designed to produce: more profit from roughly the same revenue, with a cleaner balance sheet behind it. The fuller report and supporting materials are available on the company’s official H&M Group investor relations reports page.
Frequently asked questions
What period does H&M’s six-month report cover?
The report covers H&M Group’s first half of its 2026 financial year, from December 1, 2025 to May 31, 2026. The second quarter within that period runs from March 1 to May 31, 2026. H&M’s financial year ends on November 30.
Did H&M beat or miss expectations?
H&M beat on profitability and narrowly missed on sales. Second-quarter operating profit before one-time costs of SEK 6,592 million topped the SEK 6,384 million consensus, and the 12.0 percent adjusted margin beat the 11.55 percent expected. Net sales of SEK 54,828 million came in just below the SEK 55,142 million forecast.
Why did reported operating profit look flat while adjusted profit rose?
A one-time restructuring charge of SEK 679 million, tied to organisational changes in the company’s sales markets, sat in the reported figure. Reported operating profit was SEK 5,913 million, essentially level with last year, while operating profit excluding the charge rose 11 percent to SEK 6,592 million.
How much of H&M’s sales are online?
Just over 30 percent of H&M’s sales now take place online, according to the report, and the company said its digital channel continued to grow. H&M is pursuing an omnichannel model that combines physical stores, its own apps and websites, digital marketplaces, and social media.
How many stores does H&M operate?
H&M Group ended May 2026 with 4,038 stores, down from 4,166 a year earlier, a net reduction of 128 locations. The company is closing weaker stores while updating and opening others, and expects the full-year 2026 sales effect from store optimisation to be slightly positive.
What did CEO Daniel Ervér say about the results?
Ervér said the company’s long-term work has strengthened profitability and gives it good opportunities to create more value for customers. He noted that sales in the quarter were somewhat lower than planned, while profitability and the inventory situation developed well, and flagged a digital infrastructure upgrade for the second half.
What is H&M’s guidance for June and the rest of the year?
H&M expects group sales in local currencies in June 2026 to be on par with the same month a year earlier. For the second half, the company plans to upgrade its digital infrastructure and to enter new markets including Paraguay, Malta and Azerbaijan, with Argentina to follow in 2027.
How did currency affect the reported figures?
A stronger Swedish krona reduced reported second-quarter net sales by close to 3 percentage points. As a result, sales fell 3 percent in kronor while being fairly in line with the prior year in local currencies. Over the half, the currency effect was larger, contributing to a 7 percent reported sales decline against a 1 percent local-currency decline.
Is H&M still paying a dividend?
Yes. The report shows a dividend payment of SEK 5,672 million (about USD 585 million), funded from strengthening cash generation. Operating cash flow rose 24 percent in the quarter and 15 percent over the half, supporting both shareholder returns and continued investment in stores and technology.