UPDATE 2-H&M turns corner in Q3 on strong summer collection sales

Thu Sep 26, 2013 4:16am EDT

* Q3 pretax 5.8 bln SEK vs consensus 5.5 bln

* Gross margin 58.8 pct vs consensus 57.9 pct

* Smaller than usual negative effect from markdowns

* Sept. 1-24 sales up 8 pct

* Shares jump more than 6 percent (Adds details, background, shares)

By Anna Ringstrom

STOCKHOLM, Sept 26 (Reuters) - Swedish fashion retailer Hennes & Mauritz looked to put a poor run of form behind it on Thursday as it posted forecast-beating results for its fiscal third quarter, helped by strong demand for its summer collections and cost control.

H&M, the world's second-largest fashion retailer which has most of its stores in Europe, has suffered more in a faltering global economy than bigger rival Zara-owner Inditex, which sells more clothes in emerging markets. Performance earlier in the year was hit by a chilly spring in Europe.

H&M posted its first quarterly rise in gross profit margin in more than three years to 58.8 percent from 58.2 percent a year earlier, beating a Reuters poll forecast for 57.9 percent. Pretax profits also beat expectations. Inditex reported a drop in first-half gross margin to 58.6 percent last week.

"H&M has really turned a corner here," said Societe Generale analyst Anne Critchlow. "It's the first time for quite a while that we have seen a nice increase in profit. It's a big reversal both for the profit and gross margin trends."

H&M shares, which had already risen 25 percent in the past three months on hopes margin pressure has finally eased after an improvement in like-for-like sales in the third quarter, jumped 6.6 percent by 0740 GMT to a new all-time high.

Inditex shares, which trade at 25 times expected 2013 earnings compared with 23 for H&M, rose 0.2 percent. Inditex last week posted a pick up in sales, helping to ease concerns its rapid growth of recent years may be faltering.

Chief Executive Karl-Johan Persson said H&M's summer collections had sold well, particularly in Asia but also in European markets like Germany, France and Italy, with fewer clothes sold at a markdown compared with the second quarter.

In China, where H&M is opening new stores at a rapid pace, quarter sales spiked 37 percent in local currencies, while they were up 46 percent in Japan and 48 percent in South Korea.

STORE NUMBER 3,000

H&M, which opened store number 3,000 in Chengdu earlier this month, reiterated its goal of increasing the number of stores by 10-15 percent per year, with about 350 stores planned for the full-year 2013, most in China and the United States.

H&M said sales in the first 24 days of September, the first month of its fiscal fourth quarter, were up 8 percent year-on-year in local currencies.

Even as it expands, H&M said cost control remained good, with costs in comparable stores down on the year.

It said its online store in the United States, launched on Aug. 1 after several delays, had got off to a good start.

H&M has been making long-term investments in online shopping and new chains of stores to broaden its customer base, following Inditex which runs a string of other store formats alongside Zara and has overtaken H&M online in recent years.

H&M, which now has e-commerce in nine countries, has said it aims to roll out online in several countries per year from next year on. It reiterated on Thursday it planned to go live in more markets in 2014, but gave no details of which countries.

H&M, which has faced increased competition in its budget segment from players like Britain's Primark, said its new premium clothes and accessories brand "& Other Stories", launched in March, had got a "fantastic reception," with the next store planned in Berlin soon.

Pretax profit stood at 5.83 billion Swedish crowns [$907 million) against a year-ago 4.90 billion and a mean forecast for 5.53 billion. H&M had already unveiled an 11 percent rise in turnover.

($1 = 6.4305 Swedish crowns) (Writing by Emma Thomasson, Additional reporting by Helena Soderpalm; Editing by Niklas Pollard and Mark Poter)

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.