H&M's Q2 2025 Results: A Turning Point or Continued Struggle?

H&M's Q2 2025 earnings report has sparked a critical debate: Is the Swedish fashion giant finally turning a corner, or is it still mired in the quicksand of margin erosion and shifting consumer preferences? Let's dive into the numbers, peer performance, and strategic bets to find out.

Key Takeaways from H&M's Q2 2025 Results

• Top-line struggles: Sales fell 4.9% to SEK 56.7 billion ($5.99 billion), though local-currency sales rose 1%, signaling a slight stabilization.
• Margin pressure: Operating margin dipped to 10.4% (vs. 11.9% in 2024) due to currency headwinds and freight costs. Gross margin also slid to 55.4%, driven by higher U.S. dollar costs.
• Inventory concerns: Stockpiles grew 1% to SEK 38.8 billion, but H&M insists this reflects purchasing cost inflation, not overstocking.
• Glimmer of hope: June sales in local currencies rose 3%, fueled by tariff optimism and pricing adjustments. CEO Daniel Ervér claims operational tweaks will ease cost pressures in the second half.

How Does H&M Stack Up Against Peers?

Inditex (Zara):
- Growth: 7.5% sales growth in constant currency, outpacing H&M's decline.
- Margin strength: Maintained a 29% EBITDA margin, buoyed by logistics investments and RFID technology.
- Strategy: Aggressive store openings (e.g., 50 new stores in India) and a focus on sustainability.

Fast Retailing (UNIQLO):
- Global dominance: 9% revenue growth, led by UNIQLO's strong performance in North America and Europe.
- Margin resilience: Operating profit surged 16.7%, thanks to SKU optimization and brand focus.
- Weak spots: Japan's sales dipped 2%, and Global Brands (Theory, etc.) remain a drag.

The CEO's Revamp: Can It Work?

Daniel Ervér's strategy hinges on three pillars:
1. Brand simplification: Reducing complexity to focus on core collections and full-price sales.
2. Digital omnichannel: Boosting online sales and store integration (e.g., same-day delivery).
3. Pricing power: Adjusting prices to offset cost inflation without sacrificing demand.

The verdict: Early signs are mixed. The 3% June sales uptick is encouraging, but margin recovery remains elusive. Inditex and Fast Retailing have proven that execution in logistics and technology (e.g., Zara's RFID systems, UNIQLO's SKU management) are critical to sustaining growth. H&M's progress here is underwhelming.

Risks That Could Sink the Turnaround

1. Currency volatility: H&M's reliance on the U.S. dollar makes it vulnerable to exchange rate swings. Inditex's net cash buffer (€11.5 billion) gives it a cushion H&M lacks.
2. Inventory management: A 1% inventory increase may seem benign, but misreading demand (as UNIQLO Japan did) could lead to overstocking.
3. Fast-fashion disruptors: Shein and Temu are eating into H&M's market share with faster cycles and lower prices.

Valuation: Overpriced for a Turnaround?

• H&M's P/E: 20x vs. Inditex's 19x and Fast Retailing's 36.75x. Analysts argue H&M's multiple is too rich for its unproven recovery.
• EV/EBITDA: H&M's 17x contrasts with Inditex's 9.6x, suggesting investors are overpaying for risk.

Investment Recommendation

Hold with caution:
- Bull case: If H&M's June sales momentum continues and margins rebound in H2, the stock could stabilize. The 3% June growth hints at demand resilience.
- Bear case: Margin pressures and inventory risks could push the stock lower. Analysts' “Reduce” calls (targeting SEK 130 vs. current ~SEK 150) aren't to be ignored.

Action to take:
- Wait for proof: Hold off on buying until Q3 results confirm the June uptick isn't a fluke.
- Compare to peers: Inditex's stronger margins and balance sheet make it a safer bet in fast fashion.

Final Take

H&M's Q2 results are a flicker of hope in a dark room—but the bulb is dim. While the CEO's strategies show ambition, execution against Inditex's scale and Fast Retailing's precision remains uncertain. Investors should stay patient, watch for margin recovery in H2, and favor peers like Inditex until H&M's turnaround is proven. This isn't a “buy now” story—it's a “wait and see” cautionary tale.

Bottom line: Stick to cash-rich, margin-stable peers like Inditex unless H&M's next report delivers the goods.