H&M's Return to the Bond Market: Assessing Creditworthiness and Valuation Appeal Post-Q2 2025 Earnings

H&M Hennes & Mauritz AB's Q2 2025 earnings report underscores a complex interplay of resilience and vulnerability in a challenging retail landscape. While the company reported total revenues of 56.71 billion Swedish krona ($5.99 billion), slightly below analyst forecasts, according to CNBC's Q2 earnings report, its local currency sales rose by 1%, driven by summer demand, as noted in a Capwolf analysis. However, operating profit declined year-on-year to 5.9 billion SEK, according to a Yahoo earnings summary, a trend attributed to foreign exchange headwinds, higher purchasing costs from a stronger U.S. dollar, and elevated freight expenses-issues also highlighted by CNBC. These pressures, coupled with intensified competition from fast-fashion rivals like Zara and low-cost platforms such as Shein and Temu, have eroded market share and consumer confidence, according to a Simply Wall St forecast.

Creditworthiness: A Stable Foundation Amid Rising Risks

As of October 2025, H&M maintains a BBB credit rating from S&P Global Ratings, with a stable outlook, according to a CBonds report. This rating reflects the company's strong positive cash flows and high dividend yield but also acknowledges vulnerabilities, including a high debt-to-EBITDA ratio and a declining trend in sales and earnings per share (EPS) revisions over the past 12 months, per MarketScreener ratings. Moody's ratings, while not explicitly stated in recent sources, are likely aligned with S&P's assessment given the broader macroeconomic context, including geopolitical tensions and trade policy uncertainties, as discussed in S&P Global credit conditions.

H&M's debt financing strategy emphasizes diversification to mitigate refinancing risks. As of August 31, 2025, the company had EUR 2 billion in Euro Medium-Term Note (EMTN) programs, with maturities extending through 2031, per H&M Group debt financing. This staggered maturity profile reduces immediate liquidity pressures and aligns with the company's long-term focus on financial stability. However, the high debt-to-equity ratio of 1.80, according to StockAnalysis statistics-a metric that reflects significant leverage-raises concerns about its ability to withstand prolonged economic downturns or further cost inflation.

Valuation Appeal: Mixed Signals for Bond Investors

From a valuation perspective, H&M's trailing price-to-earnings (P/E) ratio of 26.27 and forward P/E of 21.17 suggest a stock priced for cautious optimism. Its market capitalization of SEK 282.92 billion positions it as a mid-cap player in the global retail sector, but analyst sentiment remains divided. While some forecast annual earnings growth of 12.1% and revenue growth of 2.1%, others caution that valuation multiples are stretched in the current operating environment, warranting a "Sell" recommendation, per an Inderes preview.

For bond investors, the key question is whether H&M's credit profile justifies its valuation. The BBB rating implies adequate capacity to meet obligations but exposes investors to moderate risks, particularly in a sector marked by volatile consumer demand and trade policy shifts. The company's plans to offset cost pressures through price increases and supply chain flexibility could bolster its creditworthiness, but execution risks remain.

Bond Market Conditions: A Favorable Backdrop

The broader corporate bond market in Q3 2025 has been characterized by tight credit spreads and strong investor demand, driven by a pause in tariff-related uncertainties and a subdued economic outlook, according to the Breckinridge outlook. Investment-grade corporate bond spreads narrowed to an option-adjusted spread (OAS) of 83 basis points, creating a supportive environment for issuers like H&M. While the company has not announced specific bond issuance plans for Q3 2025, its existing EMTN programs and the favorable market climate suggest a potential return to the bond market in the near term.

Conclusion: Balancing Opportunity and Caution

H&M's return to the bond market hinges on its ability to navigate a dual challenge: mitigating operational costs while maintaining competitiveness in a fragmented retail sector. The BBB credit rating and stable outlook provide a baseline of confidence, but investors must weigh this against the company's high leverage and exposure to macroeconomic headwinds. For bond investors, the current valuation appears reasonable, but the path to sustainable returns will depend on H&M's capacity to execute its pricing and cost-control strategies effectively. In a market where technicals are favorable, the company's next moves will be critical in determining whether its bond issuance can deliver both safety and yield.