HMB SS

​Publicly traded companies mentioned herein: H & M Hennes & Mauritz AB (HMB SS)

Highlights

Swedish retail apparel giant H&M has seen its fundamentals deteriorate over the past 5+ years, and while the stock has declined to ~219 SEK from 300+ over the past 52 weeks, the presenter sees further downside risk. He is short at this time and said, “H&M has seen its best days”.

Like many retailers, H&M is seeing falling returns; however, as a “darling” in Sweden with a 4.5% dividend yield, the stock is a “must own” for local funds. As such, it enjoys a relatively high multiple (18x 2017 Street EPS estimates). It is true that H&M is growing square footage by high single digits and bulls like that, but it is also true that on a like-for-like basis existing store base sales are down over the last six quarters (the presenter’s model has last quarter down 4%, a figure he backed into by adjusting for store growth). In addition, EBITA margins have been declining and are down over eight of the past nine years (from 23.5% to 12.4% in 2016). If his forecasts prove to be accurate, the stock could ultimately decline to ~100 SEK (12-13x 8 SEK of earnings per share).