H&M's 10.6% Margin Comes With an Asterisk — Welcome to the Tariff-Refund Quarter
H&M returns to sales growth and prints its best operating margin in years, but 1.6 points of it is a one-time tariff refund the entire retail sector is cashing in.
HM-B.ST · Earnings Call · 2026-09-24
The headline, and its asterisk
H&M's third quarter looked like a turning point. The operating margin hit 10.6%, up from a rolling-twelve-month 9% (against 7.2% a year prior), net sales returned to +1% in local currencies, and Portfolio Brands — COS et al. — grew 3% and returned to positive territory. CEO Daniel Erver framed it as a strategic milestone: “In the third quarter, we continued to strengthen the H&M Group. We delivered a strong operating profit and a return to growth.” — Daniel Erver, CEO · 2026-09-24 But the same sentence carried the catch: 1.6 percentage points of that gross margin was a one-off tariff refund. This is not a company-unique insight — it is a market-wide wave. Know Trend's global keyword board shows tariff refund as the single highest-momentum theme across the whole transcript corpus a quarter ago, and the current quarter's board is still riddled with variants — net tariff refunds, net tariff impact. Costco, Cracker Barrel, MillerKnoll, even New Zealand's KMD all name-checked tariff refunds in the last week of reporters. So H&M is riding a broad reversal-of-duty wave, not demonstrating pricing power. That distinction matters for how you read the quarter. The good news is that the refund is now closed. IR head Joseph Ahlberg was emphatic: “We don't expect to see any further adjustments connected to tariffs in the coming quarters. We entered into a structured process in June, and that process was concluded in the quarter of Q3.” — Joseph Ahlberg, Head of Investor Relations · 2026-09-24 One less moving part.The part that is repeatable
Strip out the refund and the FX base-effect from last year's intercompany revaluation, and CFO Adam Karlsson still claims a slight underlying gross margin improvement, driven by the multi-year sourcing and supplier-consolidation program. That is not new — it has been the load-bearing plank of the H&M story for a year. What is arguably new is the language around the margin target. A quarter ago, Adam was committing to defend the 54–55% interval while reinvesting operational gains. This quarter, the framing shifted from defending to deploying: the language moved to using internal sourcing gains to fund product quality rather than push margin higher. That is a subtle but real pivot — from a margin-repair story to a value-reinvestment story. And the top line is still the problem. Erver did not dress it up: “we are not satisfied with the sales growth of 1%, and that goes across the customer groups, so we could see more potential across the customer group.” — Daniel Erver, CEO · 2026-09-24 No single customer group — women's, men's or kids — was strong enough to lift the total.Disruption, Cyber Monday, and a stock build
The quarter's messiest thread is logistics. Two disruptions stacked up: Middle East-driven global supply chain delays (air freight "compromised") and the ongoing consolidation of H&M's European warehouse network. Goods meant for Q4 arrived in Q3 and vice versa, pushing inventory up by SEK 1.4 billion. On top of that, the calendar hands Q4 one extra November selling day as Cyber Monday falls into the period this year. Management was careful to say the sales benefit is modest but the markdown cost is real — more promotional firepower in November. Notably, the same Cyber Monday keyword surfaced stateside in the recent reporter set (IES.L), confirming it is a genuine cross-company calendar irritant this quarter. The fix for all this leans on the same lever H&M has been pushing for years: shorter lead times and more in-season, proximity sourcing. Erver said the share of the fashion assortment bought later in-season is "significantly higher" for Q4 than a year ago. This is genuinely the strategic spine, and it is where a sub-1% sales growth print is most disappointing — the machinery is supposed to be showing up in the top line by now. A year ago, recall, the refrain was about not creating supply gaps: “At this point, we need more structural changes to make sure we don't create the supply gaps we've seen in this quarter.” — Daniel Ervér, CEO · 2026-06-25 That gap problem has morphed into a timing problem in 2026.The self-inflicted drag — and the regulatory tailwind
The cleanest reason to fade the 9% rolling margin is the ERP/tech program. Adam flagged that the platform upgrade cost lands harder in H2 and will persist: “this will not be done by the end of the fourth quarter this year. It will be a continuous work throughout '27 and also into 2028.” — Adam Karlsson, CFO · 2026-09-24 That is a multi-year SG&A headwind that will eat into the operating leverage story, even as external freight and material prices lean against Q4 and push harder into 2027. Offsetting that, a structural tailwind is emerging: with the U.S. de minimis exemption gone and Europe moving the same way, H&M sees a more level playing field against ultra-low-cost Chinese platforms. Ahlberg called it aIf this compresses the sub-$5 fast-fashion import channel, it is a durable — if slow-burn — share opportunity for a scale incumbent with 82 markets and 4,000 stores.positive step towards a more equal playing field where we can compete on equal terms, which we believe is great for customers.