Citi reaffirmed its Sell rating on Hennes & Mauritz AB (HMB:SS) (OTC: HNNMY), holding steady with a SEK143.00 price target. The firm's analysis follows a recent catch-up with the fashion retailer, after which no changes were made to the third quarter or full year 2024 estimates for H&M.
The bank forecasts a modest +1% constant currency sales growth for the third quarter of 2024 (3Q24e), contrasting with the consensus expectation of +3.2%. This projection takes into account the -6% constant currency sales decline experienced in June, which typically accounts for about 40% of the third quarter's sales.
This is despite the fact that July and August are expected to have easier comparisons.
Citi's forecast for H&M's earnings before interest and taxes (EBIT) stands at SEK 4,168 million for the third quarter and SEK 18,325 million for the full year 2024. These figures fall significantly below the consensus, which is -24% for the third quarter and -10% for the full year.
Moreover, Citi estimates an EBIT margin of 6.9% for the third quarter and 7.7% for the full year, which is lower than the consensus of 9.0% and 8.5%, respectively, and also below the company's own target of 10%.
The bank also highlighted concerns regarding consensus estimates being too optimistic in predicting sales, general, and administrative (SG&A) leverage for H&M.
This cautious stance on H&M's financial performance aligns with Citi's maintained Sell rating and price target, suggesting that the bank expects the retailer's stock to underperform.
InvestingPro Insights
In light of Citi's cautious stance on Hennes & Mauritz AB (H&M), real-time data from InvestingPro provides additional context to the retailer's current financial status. As of the last twelve months leading up to Q2 2024, H&M has a market capitalization of $25.8 billion and operates with a moderate level of debt. The company's P/E ratio stands at 23.92, which is considered low relative to its near-term earnings growth, and it is trading at a high Price / Book multiple of 6.45.
Despite a modest revenue growth of 1.92% over the same period, H&M remains a prominent player in the Specialty Retail industry. The company's profitability is underscored by a gross profit margin of 53.16% and an operating income margin of 7.73%. Analysts predict H&M will be profitable this year, which is corroborated by a positive EBITDA growth of 83.86% and a return on assets of 6.14%.
For investors seeking further insights, there are 5 additional InvestingPro Tips on H&M, including an analysis of its dividend yield and price performance over various time frames, available at InvestingPro. This includes the company's dividend yield of 3.96% and a notable dividend growth of 48.61% from the last twelve months as of Q2 2024, which may be of particular interest to income-focused investors.
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