The onset of COVID-19 and ongoing social distancing efforts does not bode well for apparel retailers such as H&M (OTCPK:HNNMY), which mainly operate across city-center stores. Even with a turnaround effort in place, uncertainties around tighter controls and a stalling footfall recovery into stores make the H&M investment case especially difficult. Yet, at current valuations, the market seems to be factoring in a much quicker recovery from COVID-19 than is likely, and therefore, I think shares could be vulnerable to significant downside revisions in the coming quarters.

Promising September Numbers but Caution is Warranted

From the FQ3 results, I think the better than expected improvement in September trading numbers was perhaps the biggest surprise. The fact that sales only declined c. 5% in local currency terms despite c. 3% of the store base remaining shut was impressive in context, and certainly better than the c. 10% decline consensus was looking