UPDATE 2-H&M Feb sales rise despite German consumer gloom

Thu Mar 15, 2012 6:57am EDT

* Feb local currency total sales +13 pct vs +8 pct forecast

* Dec-Feb sales 27.8 bln SEK vs 27.4 bln forecast

* Shares +2 pct

* Analyst: H&M probably outperformed weak German market (Adds analyst comment, share reaction, background)

By Anna Ringstrom and Veronica Ek

STOCKHOLM, March 15 (Reuters) - Sales at world no.2 fashion retailer Hennes & Mauritz' established stores unexpectedly grew for a third consecutive month in February despite gloom in its biggest market Germany.

Turnover at the Swedish firm's stores open a year or more grew 2 percent in local currencies, against a Reuters poll average forecast for a 1 percent drop.

"It's a pleasant surprise. February sales are quite good compared with what was expected. H&M is going forward and gaining market share, in my belief, and things seem quite good," Sydbank analyst Nicolaj Jeppesen said.

"When we know that some 25 percent of H&M sales are from the German market, we must conclude that they really outperformed the German market this month."

Shares in the budget apparel retailer were up 2.0 percent at 0945 GMT, outperforming the STOXX Europe 600 retail index .

Overall apparel sales in Germany dived 8 percent in February, according to industry publication Textilwirtschaft.

H&M and rivals such as Zara owner Inditex, the world's largest fashion retailer, have in recent months had to slash prices to shift a buildup of stock caused by unusually mild weather and a squeeze on consumer spending due to euro zone debt crisis worries.

Germany, whose economy has held up relatively well compared with many European neighbors in face of the crisis, saw retail sales unexpectedly fall in January.

Retail sales are an indication of household demand, which has long been the weak spot of the euro zone economy.

German retail sales data for February are due towards the end of the month.

H&M, which has the bulk of its business in Europe, said in January markdowns would be large in the quarter and it was braced for tough times in many markets this year, as it posted a surprise fifth straight drop in quarterly profit for the September-November period.

The group, which has around 2,500 stores in 43 countries, has been cutting prices in a bid to gain market share, while also expanding into faster-growing emerging markets.

It does not comment on demand or markdowns in its monthly sales publications, but said sales were boosted by 3 percentage points by the extra day in February due to 2012 being a Leap Year.

It said total sales in the month, the last of its financial first quarter, rose 13 percent, beating an average forecast for an 8 percent rise.

Societe Generale analyst Anne Critchlow said cold weather and a weak German market were headwinds in the month, but the total February sales growth rate was pleasing.

"H&M is the most aggressive space expansion story in the large-cap non-food retail sector," she said,, but added: "We still have some short term concerns ahead of the Q1 newsflow on March 29, for gross margin/mark-down reasons, although this is difficult to predict accurately."

H&M on Thursday posted December-February turnover ahead of the full earnings report. It grew to 27.8 billion crowns from a year-ago 24.5 billion, matching the consensus forecast.

Inditex will post its quarterly results on Wednesday. (Reporting by Anna Ringstrom; Editing by Erica Billingham and Sophie Walker)

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