Sep 27, 2010
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H&M's Q3 profit seen up on strong sales, market share

Sep 27, 2010

H&M A/W 2011
STOCKHOLM, Sept 27 (Reuters) - Swedish fashion giant Hennes & Mauritz (HMb.ST) is expected to report a strong rise in profits in its fiscal third quarter, thanks to strong demand and a gain in market share in some key centres.

The world's third biggest clothing retailer by sales is expected by analysts to post a 28 percent jump in pretax profit to 6.1 billion crowns ($896 million) for the three months to the end of August, according to a Reuters poll.

The fashion company reported a sharp increase in sales in July from a year ago, beating all forecasts with its focus on high fashion at knock-down prices.

And like-for-like sales in August are thought to have been up by nearly 9 percent according to the average forecast given by analysts polled.

"The main driver is the really strong monthly sales figures. Like-for-like growth has been exceptional," said Anders Wiklund, an analyst at Evli. "August has a weak comparable so it should also be quite good."

"Most regions are quite strong, including Germany which is most important," he added.

Arch rival, Spanish group Inditex (ITX.MC), the world's biggest clothing retailer which owns the Zara and other brands, beat forecasts last week with a near 70 percent rise in first-half net profit thanks to a pick-up in consumer demand.

European retailers have seen a tentative recovery in consumer demand following the sharp global downturn.

Analysts also say H&M has been gaining market share in key centres such as Germany, which saw its fastest quarterly economic expansion since reunification in the second quarter.

However, there are some worries that moves to rein in government debt could crimp consumer spending in the months ahead while the recovery in the United States, the world's biggest economy, remains on shaky ground.

Another rival, Esprit Holdings Ltd (0330.HK), has said conditions in Europe -- which accounts for more than 80 percent of its sales -- are tough, hurting its second-half earnings.

H&M's third-quarter gross margin, forecast on average to be 62.3 percent in the poll, will be key, analysts said.

"The main focus is how costs are going to come out looking given higher cotton prices, higher costs for transport and wages in Asia," one analyst said.

($1=6.808 Swedish crowns) (Reporting by Mia Shanley and Rebecca Roos; Editing by Greg Mahlich)

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