UPDATE 2-Next, H&M feel chill of weather and recession

Thu Mar 21, 2013 8:56am EDT

* Next 2012-13 profit 621.6 mln stg, in line with forecasts

* Next says first few weeks of new year quiet

* Next tempers 2013-14 sales growth guidance to 1.5-4 pct

* Hennes & Mauritz Q1 profit down 13 pct

* Ted Baker makes good start to new year

By James Davey and Anna Ringstrom

LONDON/STOCKHOLM, March 21 (Reuters) - Two of Europe's biggest fashion retailers, Next and Hennes & Mauritz , have endured a tough start to the year, hit by a combination of unhelpful weather and economic headwinds.

Retailers across Europe are battling a prolonged squeeze in consumer incomes as governments try to reduce their deficits. Freezing wet weather has also discouraged shoppers.

In Britain, two thirds of GDP is generated by consumer spending so a poor first quarter would increase the chances of the country dipping into a third recession in four years.

Next, Britain's second-biggest clothing retailer, said on Thursday that trading since the start of February was quiet, with sales at the bottom of a 1-4 percent target growth range for 2013-14. It had issued an annual growth target of 1.5-4 percent in January.

It also reported a 9 percent rise in 2012-13 profit, in line with previous guidance.

Hennes & Mauritz, Europe's No. 2 fashion retailer, said it will speed up store expansion in the face of weak European demand after unusually big markdowns pushed profits down by 13 percent in its first quarter, more than expected.

Next, known for making and achieving precise earnings guidance, said it expected sales to pick up.

"Unusually cold weather is definitely suppressing sales of summer stock that we'd normally be selling," Chief Executive Simon Wolfson told Reuters.

"How much difference that will make, we'll only know when we see some warmer temperatures and more spring like weather."

Wolfson said the firm is budgeting for sales in existing stores to be moderately less in the 2013-14 financial year than in the previous year, with growth in sales coming from new space and the firm's Directory online and catalogue business.

He expects Britain's consumer environment to remain subdued.

"As long as inflation is moving ahead faster than wages then people are going to have to save money from their discretionary spend in order to fund their essential spend," he said.

Shares in Next, up 43 percent over the last year, were up 3 percent, helped by a slightly better than expected dividend.

"The warning that the first few weeks of the year have been quiet has negative read across to Marks & Spencer and Debenhams," said Investec analyst Bethany Hocking.

Shares in M&S and Debenhams were both down 1 percent.

Hennes & Mauritz CEO Karl-Johan Persson said the December to February period was challenging because of a "continued tough macro-economic climate, but also due to unfavourable weather during parts of the quarter."

H&M warned that March sales have also been hit by cold weather. Analysts expect double-digit like-for-like declines in its sales this month.

SOME GOOD NEWS

Although British department store operator Debenhams issued a profit warning earlier this month, not all fashion retailers have made weak starts to 2013.

On Wednesday, British online fashion firm ASOS posted a 37 percent rise in second-quarter sales, highlighting stand-out performances from France and Germany.

On Thursday, British designer brand Ted Baker, posted a 17 percent rise in 2012-13 annual profit and said its new financial year had started well.

Also on Thursday, official data showed British retail sales volumes in February rose 2.6 percent year on year - the strongest rise since March 2012.

Next made underlying pretax profit of 621.6 million pounds ($940.6 million) in the year to the end of January on sales up 3.1 percent at 3.5 billion pounds.

Earnings per share rose 17 percent to 297.7 pence, partly reflecting a 241-million-pound share buyback. The dividend was raised by 16 percent to 105 pence.

It said it expected 2013-14 pretax profit of 615-665 million. The bottom of that range would represent a fall of 1 percent and the top figure would be a gain of 7 percent.

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