Drop in H&M's Profit Doesn't Look Permanent and Nearshoring Shift Is a Plus; Shares Attractive

We do not expect to materially change our SEK 179 fair value estimate for no-moat Hennes & Mauritz as the company reported sales in line with its sales announcement and our estimates, but significantly lower operating profitability even when one-off items are excluded (4.4% operating margin versus 7.7% in 2021 and 5.5% in our forecasts). We agree with management that a significant portion of earnings pressure is improving in the current year (for example transportation costs, purchasing cost inflation, strong U.S. dollar, annualization after suspension of Russian business in the second quarter). Management kept its target for double-digit operating margin by 2024, which is consistent with our estimate for 10%.