UPDATE 2-H&M sales shrink for third straight month

Tue Jan 15, 2013 5:12am EST

* Total sales +8 pct vs consensus +5 pct

* Comparable sales -2 pct vs consensus -4 pct

* Shares up 4 pct

* Discounting may have been unusually big - analyst (Adds analyst, detail, background, shares)

By Anna Ringstrom and Christopher Jungstedt

STOCKHOLM, Jan 15 (Reuters) - Budget fashion firm Hennes & Mauritz reported its third straight month of falling sales at stores open more than a year On Tuesday, hit by weak European consumer spending.

The Swedish group, the world's second-biggest clothing retailer after Zara owner Inditex, has the bulk of its business in Europe, where the debt crisis and rising unemployment have dampened the mood of shoppers.

Like-for-like sales, which strip out stores open for less than a year, fell 2 percent in December. That was less than the 4 percent fall analysts had forecast in a Reuters poll, which sent H&M shares higher.

Overall sales also rose more than forecast, by 8 percent rather than an expected 5 percent.

"The big question is whether the slightly less bad than expected sales figure is due to higher discounting than a year ago. We simply don't know whether that was the case or not yet," said Societe Generale analyst Anne Critchlow.

"We need to wait for the full-year results ... the company may give some indication at that point as to the influences on the growth margin in Q1."

In December 2011, like-for-sales rose 4 percent and total sales grew 13 percent.

H&M shares were up 4 percent at 229 crowns by 0911 GMT.

The December sales figures also showed the company outperformed its single biggest market Germany, where industry data has shown apparel sales dropped 9 percent last month.

H&M is due to post its 2011/12 full-year earnings on Jan. 30. It has already said overall sales were up 10 percent in the year, of which established stores accounted for 1 percent.

Inditex, with a larger share of sales than H&M in faster-growing emerging markets and less exposed to cost inflation in Asia, is expected to report a 16 percent rise in sales in its financial year to the end of January, according to Thomson Reuters Starmine data.

Investors have driven up Inditex shares more than H&M's. Since the start of October last year, Inditex stock is up almost 8 percent whereas H&M is down 0.7 percent.

Inditex trades on a forward price/earnings ratio of 24, according to Thomson Reuters Starmine data compared with the 19.5 valuation for H&M.

H&M is expanding its reach outside the core fashion chain. Earlier this month it was said it was opening a chain of women's clothing and accessory stories. (Reporting by Anna Ringstrom;Editing by Erica Billingham)

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