Apr 8, 2010
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H&M first quarter pretax beats forecast, March sales strong

Apr 8, 2010

By Nicholas Vinocur and Veronica Ek

STOCKHOLM, April 8 (Reuters) - Swedish fashion chain Hennes & Mauritz (HMb.ST) beat expectations for first-quarter profit on Thursday 8 April, offsetting economic weakness while strong March sales suggested a return to higher spending in the second quarter.

Photo : AFP

The world's third largest clothing retailer, which last year suffered its worst sales decline on record, said currency swings and a well-received spring collection had helped its profit during the period, and the second quarter had started strongly.

Quarterly gross margin came in at 61.9 percent, higher than a mean forecast of 59.7 percent in the Reuters poll, as mark-ups of sales to subsidiaries worked in its favour.

"A very good start for H&M," said Soren Lontoft Hansen, analyst at Sydbank. "And looking at the gross margin, it is very, very positive."

Pretax profit in the company's first quarter -- which runs from December to February -- was 5.1 billion Swedish crowns ($706.9 million), versus a mean forecast of 4.6 billion in a Reuters poll of analysts and a year-ago result of 3.6 billion.

H&M shares, which have risen more than 18 percent since the start of the year, were up by 4.2 percent at 0807 GMT.


The company, whose rivals include high-street fashion giants like Inditex ITX.MC and GAP (GPS.N), said economic conditions had remained weak during the first quarter although a strong start to the second suggested the situation was improving.

British retailer Marks & Spencer (MKS.L) warned of a tough year for consumers on Thursday 8 April despite beating fourth-quarter sales forecasts. [ID:nLDE6361L8]

H&M same-store sales, which started rising in December after a seven-month losing streak, dipped 1 percent in February compared to the same month last year, but rose by 9 percent in March. For the quarter, same-store sales rose by 2 percent year-on-year.

"It seems like the good development in sales is continuing in the second quarter," Hansen said. "It's definitely positive for H&M and I expect that they will be able to reach modest, but positive, same-store sales also in the second quarter."

Thanks to its geographic spread, H&M fared better than many of its competitors during the downturn, and has recently sought to press the advantage by expanding its footprint in Asia.

Its strategy of enlisting designer names from the world of high fashion such as Jimmy Choo and Karl Lagerfeld to headline low-priced clothing lines has also paid off, boosting the presence of its brand in new territories.

In February, total sales at the chain were up 10 percent, versus an expected 12.2 percent rise seen in the Reuters poll. (Reporting by Nick Vinocur and Veronica Ek; Editing by Mike Nesbit) ($1=7.289 Swedish Crowns)

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