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Jun 19, 2013
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H&M earnings down more than expected in second quarter

By
Reuters
Published
Jun 19, 2013

STOCKHOLM, Sweden - H&M, the world's second-largest fashion retailer, reported a sharp rise in sales so far in June, offsetting the negative impact of a greater than expected drop in earnings in the second quarter.

The Swedish company, whose biggest global rival is Zara-owner Inditex, said sales in June 1 to 17 had risen 14 percent in local currency terms, but warned that the situation remained challenging in many of its major markets.

Its shares jumped 2.1 percent to 229.50 crowns by 0708 GMT, extending a recovery since hitting a six-month low of 219 crowns last week.

Spring-Summer 2013 | Source: H&M

"(Q2) is slightly weaker than expected," DNB analyst Haakon Aschehoug said, adding: "June sales to date are actually looking a little bit better than expected, so it's a good start to Q3."

Earnings in the company's fiscal second quarter were hit by still-sluggish consumer morale and bad weather in its main European market. The company said it was entering the third quarter with higher inventories than planned.

Pretax profit in March through May fell to 6.1 billion crowns ($946.7 million) from a year-earlier 7.05 billion, compared with a mean forecast of 6.3 billion in a Reuters poll of analysts.

H&M, which last saw quarterly earnings fall in the fourth quarter, said profits were also negatively affected again by large long-term investments and currency translation effects.

CHILLY WEATHER

Fashion firms have seen Europe's debt crisis and rising unemployment weaken consumer demand in the region, and H&M has faced growing competition in its budget segment.

With unusually chilly weather in March and April in Europe leaving spring collections on the racks, H&M said markdowns dragged down its gross margin in the quarter to 61.1 percent from 61.7 percent a year earlier, in line with expectations.

H&M had earlier said quarterly sales stood at 31.6 billion crowns, roughly unchanged from a year ago.

In Germany, H&M's biggest single market, clothing sales have been flat in the past two months after a dive in March, and recent data suggest the German economy is on track for a modest recovery after a sluggish start to this year.

Inditex has weathered the European downturn better than H&M, helped by faster emerging market growth, but last week posted weak quarterly profit growth due to the cold weather and gloom in its home market Spain.

Online retailers such as Zalando and ASOS Plc are also starting to give chains such as H&M a run for their money, with steep sales growth, albeit from relatively low levels.

H&M, which has rolled out web stores at a relatively slow pace, plans to launch online in the United States in August after several delays. It also said it was planning further online stores in 2014.

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