Oct 17, 2011
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Warm weather dents H&M's autumn sales

Oct 17, 2011

STOCKHOLM, Oct 17 (Reuters) - Sales at Hennes & Mauritz AB (HMb.ST), the world's second-largest fashion retailer, fell 7 percent in September as unusually warm weather across Europe dented demand for autumn clothes.

Photo: Corbis

A Reuters poll of analysts had forecast the Swedish budget-fashion group to post a drop of 6 percent in sales at established stores, with estimates in a 5-7 percent range.

Analysts said same-store sales were a bit disappointing, but should pick up as the weather turns colder.

"We see that the weather in October has changed in most of the European markets, which I believe will drag the customers to the stores. I think we'll see a better October," Nicolaj Jeppesen, an analyst at Sydbank said.

Total sales, which includes stores opened in the past year, rose 3 percent in local currencies versus the poll average of a 2.8 percent rise. H&M had previously said sales grew 3 percent in Sept. 1 through 27, hurt by warm weather and weak consumer confidence.

Shares in H&M were down 0.3 percent at 0821 GMT, underperforming a 0.6 percent rise in the STOXX Europe 600 retail index .

The company is often seen as better positioned to cope with a downturn than many peers, thanks to its geographic spread and low-price profile. But it has seen earnings fall for four straight quarters, squeezed by a spike in input costs and the strong crown.

H&M, which will launch a collection by Italian fashion icon Donatella Versace in November, has said that the negative effect from high cotton prices would remain in the fourth quarter, but that the outlook was brighter after that.

When H&M reported third-quarter earnings at the end of September, questions were raised as to whether the inventory levels -- higher than the company had planned -- would lead to big markdowns, denting margins in the fourth quarter.

Jeppesen predicted that H&M, ranked second in the global fashion retail market behind Zara owner Inditex , would benefit from having held prices low while other competitors had moved in the opposite direction.

"People tend to get uncertain when there's talk about financial troubles and will seek the cheaper collections. H&M has a very strong brand and lower prices. I think that's a good combination," he said.

H&M with more than 2,300 stores in 41 countries, said in September it would speed up its expansion and open 265 new stores in its fiscal year 2010/11, compared with an earlier forecast for 250 new outlets.

Last year total sales in September, the first month in H&M's fiscal fourth quarter, rose 16 percent at the group, while sales in comparable units were up 8 percent.

By Veronica Ek

($1 = 6.604 Swedish Crowns) (Additional reporting by Love Liman; Editing by David Holmes and Errica Billingham)

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