Digital Expansion And Sustainable Practices Will Strengthen Customer Engagement And Operational Efficiency

Key Takeaways

• Successful womenswear collections and improved shopping experiences may drive revenue growth and strengthen customer retention.
  
• Digital expansion, sustainable practices, and marketing efforts aim to enhance international revenue and brand strength.
  
• Rising logistical and marketing costs, brand integration challenges, and macroeconomic uncertainties threaten H&M's profitability and revenue generation.

Catalysts

Provides clothing, accessories, footwear, cosmetics, home textiles, and homeware for women, men, and children worldwide.

• Improvements in product assortment, particularly successful womenswear collections, are expected to drive future revenue growth by increasing market share and full-price sales.
  
• Elevating the shopping experience through upgraded stores and improved online functionality is anticipated to strengthen customer retention and engagement, potentially boosting revenue and net margins.
  
• Expansion efforts in digital channels and external platforms like Duoing, Pinduoduo, Trendyol, and Ajio are likely to enhance revenue growth from new customer segments and international markets.
  
• Strategic focus on organic growth with investments in sustainable supply chain practices and nearshoring is expected to improve operational efficiency and gross margins.
  
• Enhanced marketing efforts, particularly through influencer collaborations and social media engagements, are aimed at increasing brand strength and consumer demand, which could positively impact future revenue and earnings growth.

H & M Hennes & Mauritz Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming H & M Hennes & Mauritz's revenue will grow by 3.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.0% today to 6.1% in 3 years time.
• Analysts expect earnings to reach SEK 15.8 billion (and earnings per share of SEK 9.85) by about March 2028, up from SEK 11.6 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting SEK17.9 billion in earnings, and the most bearish expecting SEK13.7 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 18.5x on those 2028 earnings, down from 19.0x today. This future PE is lower than the current PE for the GB Specialty Retail industry at 21.0x.
• Analysts expect the number of shares outstanding to decline by 0.39% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.8%, as per the Simply Wall St company report.

H & M Hennes & Mauritz Future Earnings Per Share Growth

Risks

• Extended transportation lead times connected to the Red Sea situation have impacted H&M's stock levels, which may continue to increase logistical costs and affect gross margins.
  
• The cost of external factors, including rising transportation costs, is expected to be a negative influence on the purchasing costs for the upcoming quarter, which could suppress gross margins further.
  
• H&M's focus on long-term investments in marketing may result in higher marketing costs in the short term, which could raise selling and administrative expenses and potentially compress net margins.
  
• The integration and winding down of certain brands, such as Monki, involve significant costs and may affect portfolio brand sales negatively, posing risks to overall revenue generation.
  
• Macro-economic conditions and geopolitical uncertainties pose ongoing challenges that could impact H&M's ability to achieve its sales and profitability targets, potentially affecting its overall earnings.

Valuation

• The analysts have a consensus price target of SEK151.982 for H & M Hennes & Mauritz based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of SEK190.0, and the most bearish reporting a price target of just SEK120.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be SEK258.7 billion, earnings will come to SEK15.8 billion, and it would be trading on a PE ratio of 18.5x, assuming you use a discount rate of 6.8%.
• Given the current share price of SEK137.7, the analyst price target of SEK151.98 is 9.4% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.