Jun 20, 2007
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H&M sees profits soar 30 percent but disappoints market

Jun 20, 2007

STOCKHOLM, June 20, 2007 (AFP) - Swedish cheap'n chic fashion chain H&M announced Wednesday a 31-percent rise in second-quarter net profit to 3.46 billion kronor (368.2 million euros, 500 million dollars) as the group pursues its worldwide expansion.

The Italian football player Paolo Maldini in the campaign of H&M for the spring 2007

H&M attributed its strong earnings to the success of its new chain of more exclusive stores, COS, which opened in March in selected cities.

In addition, "the expansion of online and catalogue sales in the Netherlands and of shoes has surpassed expectations," it said.

The world's second-largest clothing retail chain behind Inditex (which owns H&M rivals Zara and Massimo Dutti) saw its operating profit climb by 30 percent to 4.93 billion kronor.

Operating margin rose from 22.3 percent a year ago to 24.6 percent, but that was below analysts' average forecasts of 25 percent.

Meanwhile, pre-tax profit soared by 30.9 percent to 5.13 billion, also short of forecasts of 5.24 billion.

During the second quarter, which runs from March 1 to May 31, sales climbed by 17.9 percent to 23.55 billion including value-added tax, compared to 19.96 billion a year earlier. For the first six months of the year, sales reached 43.25 billion.

The earnings were strong but in general below market expectations, and the H&M share price was down by 1.18 percent in midday trading on the Stockholm stock exchange at 417.50 kronor.

Analysts acknowledged that they had been too optimistic in their forecasts.

"I think the market forecasts were actually too high," Rolf Karp, analyst at the Oehman investment bank told Thomson Financial news agency.

But, he said, "the outlook for the remainder of the year remains very good."

In the first half of the year, H&M continued its worldwide expansion strategy. It opened 83 new stores, compared to 57 in the first half of 2006, and closed six. At the end of May the group had 1,420 stores, up from 1,244 a year earlier.

The group did not provide a forecast for the rest of the year, but said it planned to open 95 stores, primarily in Britain, France, Germany, Italy, Spain, and the United States.

Plans for the company's first store in Tokyo, due to open next year, were progressing as scheduled, and a second store in the Japanese capital is now planned for the autumn of 2008.

Meanwhile, H&M announced that Italian designer Roberto Cavalli would create a special collection for the chain, following in the footsteps of Madonna, Karl Lagerfeld and Viktor and Rolf who have previously collaborated with the Swedish retailer.

The collection will be available in 200 stores worldwide as of November 8, 2008.

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