H&M Group's third-quarter profit improved, but shares fell nearly 3% after the retailer missed market earnings estimates, underscoring continued pressure in key European markets.
Net sales rose 1% in local currencies in the quarter, slightly below the market expectation for a stronger rebound. Operating margin reached 10.6%, up significantly from the prior year, though the figure included a positive one-off tariff refund that boosted the result by approximately 1.6 percentage points. On a rolling 12-month basis, operating margin improved to 9.0% from 7.2%, as the company continues working toward a long-term target of 10%.
Gross margin stood at 54.0% in Q3, with the trailing-twelve-month rate at 54.4%, roughly in line with H&M's target range of 54% to 55%. Return on capital employed climbed 18% on a rolling 12-month basis, while earnings per share rose 23% over the same period. Full-year market expectations had called for an EPS of $2.18 on revenue of $57.09 billion, a target the company did not meet.
Selling and administrative expenses decreased 1% in Q3 in both Swedish kronor and local currencies. Inventory rose by SEK 1.4 billion year on year. Portfolio brands posted a 3% local-currency sales increase. The company said about one-fifth of its store portfolio has been upgraded with technologies including RFID tracking, self-checkout systems, and layout changes.
Performance varied sharply by region. Nordic markets delivered strong growth, while Western Europe faced persistent headwinds from cautious consumers and heavy promotional activity. Germany gained market share despite the difficult environment, but H&M described the United Kingdom's results as unsatisfactory. The retailer operates across 82 markets globally.
Looking ahead, H&M cautioned that Q4 would face somewhat higher markdowns than last year because Cyber Monday shifted from December to November and supply-chain and inventory timing delays further complicated the holiday selling season. Higher transportation and freight costs were also expected to weigh on gross margin. Material-price inflation is likely to become more visible toward the end of 2026 and into 2027. Full-year SG&A growth is projected at the lower end of the low-single-digit range in local currencies. Capital expenditures are expected to land at the lower end of the guided range but will be back-loaded into the fourth quarter. The enterprise resource planning system rollout will continue to pressure SG&A through 2027 and 2028.
In the aftermath of the report, H&M shares fell 2.95% to $161.3, trading near the lower end of their 52-week range — approximately 3.1% above a low of $156.4 and roughly 17% below a high of $194.3.
Investor relations head Josef Ahlberg noted the company's strategic shift toward shorter lead times and a growing share of in-season buying, a change intended to improve responsiveness to evolving consumer preferences. CEO Daniel Erver emphasized the operating profit improvement and return to growth, though the stock's reaction suggested investors focused more on the earnings miss and Q4 headwinds than on the margin gains.
