H&M margins strengthened significantly in the first half of fiscal 2026, demonstrating that Europe's largest fashion retailer can improve earnings quality even when revenue is under pressure. H&M reported higher gross margins, stronger operating cash flow, and tighter inventory control across the six-month period, signaling a more disciplined operating model.
Q2 FY26: Revenue Falls, Profitability Holds
H&M's second-quarter net sales, for the period ended 31 May 2026, totaled SEK 54.83 billion (approximately $5.62 billion), down from SEK 56.71 billion in Q2 FY25. In local currencies, sales were broadly unchanged year on year, even though H&M operated around 3% fewer stores globally.
CEO Daniel Erver acknowledged the topline missed internal targets. “Sales in the quarter were somewhat lower than planned, while profitability and the stock-in-trade situation developed well,” he said. Erver linked the results to the company’s long-term strategy of building a foundation for sustainable, profitable growth.
H&M noted that tighter stock levels occasionally limited its ability to fully satisfy demand. The retailer plans to upgrade its digital infrastructure in H2 2026, targeting faster decision-making and improved inventory allocation across its global store network.
Margin Expansion and Cash Flow Gains
The gross margin expanded to 56.6% in Q2, up from 55.4% in the prior year, even as gross profit edged slightly lower to SEK 31.05 billion (approximately $3.18 billion). Selling and administrative expenses declined 1% to SEK 25.13 billion, though the period included SEK 679 million in one-off restructuring charges.
Excluding restructuring costs, adjusted operating profit rose 11% to SEK 6.59 billion, lifting the operating margin to 12% from 10.4%. Operating cash flow jumped 24% to SEK 10.59 billion. Inventory fell 10% to SEK 34.94 billion, highlighting the sharper stock discipline now embedded in H&M's supply chain operations.
First-Half 2026 Financial Highlights
For the full six months of FY26, H&M's net sales declined to SEK 104.44 billion (approximately $10.71 billion), with local-currency sales down 1%. Gross profit rose to SEK 56.18 billion ($5.76 billion), and the gross margin improved to 53.8% from 52.3% in H1 FY25.
Adjusted operating profit advanced 14% to SEK 8.10 billion for the half. Net profit climbed to SEK 4.67 billion (approximately $479 million), or SEK 2.95 per share, versus SEK 4.54 billion, or SEK 2.85 per share, in H1 FY25. First-half operating cash flow grew 15% to SEK 14.62 billion, reinforcing the case that H&M profitability improved despite softer sales volumes.
Outlook and Latin America Expansion
H&M extended its Latin America footprint during Q2, opening its first store in Rio de Janeiro, Brazil. The group plans to enter Paraguay in the second half of 2026 and Argentina in 2027, targeting markets where formal fashion retail penetration remains relatively low.
For June 2026, H&M guided local-currency sales to be broadly in line with the same month last year. Textile suppliers and B2B procurement teams tracking major global apparel buyers can follow the latest developments at the Textilezon Info Center.
H&M's improving margin trajectory signals that the retailer is prioritizing profitability over volume growth — a strategic shift that will influence its sourcing volumes, supplier relationships, and assortment decisions across global textile markets.
Frequently Asked Questions
What were H&M's net sales in Q2 FY26?
H&M reported net sales of SEK 54.83 billion (approximately $5.62 billion) in Q2 FY26, down from SEK 56.71 billion in Q2 FY25. In local currencies, sales were broadly flat year on year.
How much did H&M's gross margin improve in H1 FY26?
H&M's gross margin improved to 53.8% in H1 FY26, up from 52.3% in H1 FY25. In Q2 alone, the gross margin reached 56.6%, compared with 55.4% in the year-earlier quarter.
What is H&M's expansion plan for Latin America?
H&M opened its first Rio de Janeiro store during Q2 FY26 and plans to enter Paraguay in H2 2026 and Argentina in 2027, continuing its push into high-growth emerging markets.
