* Q2 pretax profit 7.1 bln SEK vs consensus 6.6 bln
* Gross margin unchanged at 61.7 pct vs f'cast 61.1 pct
* Says took market share in challenging market
* Shares climb 2.5 pct
(Adds quotes, analysts, share price)
By Patrick Lannin and Rebecka Roos
STOCKHOLM, June 20 Hennes & Mauritz,
the world's second-biggest clothing retailer, beat quarterly
profit forecasts, joining larger rival Inditex in
showing austerity-hit shoppers are keen to cheer themselves up
with cheap fashions.
The Swedish group also reported steady gross profit margins
on Wednesday, raising hopes that a long-standing drag from
higher cotton prices is coming to an end.
"Many countries are still in a challenging macro-economic
situation with austerity measures and restrained consumption,"
H&M said, as it hailed strong sales of spring and summer ranges
including soft pastel dresses and Hawaiian-inspired resort wear.
"The fact that H&M continues to gain market share even in
these challenging markets is a clear sign that H&M's strong
offering is appreciated by customers worldwide."
Many European retailers are struggling as disposable incomes
are squeezed by rising prices, muted wages growth and government
cutbacks, while confidence is rattled by a sovereign debt
H&M and Spain's Inditex have fared better than most
thanks to a focus on low-priced fashions and broad geographic
spreads that include faster-growing emerging markets.
Inditex, which runs the Zara chain, last week beat
first-quarter profit forecasts.
H&M chief executive Karl-Johan Persson said spring and
summer ranges including pleated skirts and smock tops had been
snapped up "in all our 44 markets, in big cities as well as
small cities - and in both countries with strong economic growth
and countries with a tough macroeconomic climate".
Espirito Santo analysts hailed H&M's better-than-expected
performance on both profit margins and operating costs, but said
they continued to prefer Inditex.
The Spanish firm has outperformed its Swedish rival in
recent quarters, helped by its broader range of brands and by
the fact it sources a smaller proportion of goods from Asia,
where labour costs have been rising.
H&M shares, which have beaten the STOXX Europe 600 retail
index by 11 percent this year but lagged Inditex by
about the same amount, were up 2.5 percent to 236.2 Swedish
crowns at 0920 GMT.
MARGIN PRESSURE EASES
H&M said pretax earnings reached 7.1 billion crowns ($1
billion) in its second quarter, which runs from March to May,
compared with 5.8 billion a year-ago and a mean forecast in a
Reuters poll of analysts for 6.6 billion.
The group has had a policy of holding prices rather than
passing on cost increases, like cotton, to customers. While this
has helped it to gain market share, is has hit profit margins.
However, H&M said on Wednesday the impact of higher cotton
prices had been almost neutralised and it posted an unchanged
gross profit margin of 61.7 percent, topping a consensus
forecast for 61.1 percent.
"This is clearly due to easing input prices in Asia, which
is coming through faster than expected. I think that will be
even better in the next quarter," said Cheuvreux analyst Daniel
H&M, which has around 2,500 stores and the bulk of its
business in Europe, said markdowns in relation to sales were
unchanged from a year earlier.
The U.S. dollar had a relatively neutral effect in the
second quarter, but would become negative for purchases for the
second half of the year, it added. Inventories were up 8 percent
year-on-year at the end of the quarter.
H&M, which already has a track record in leveraging sales by
cooperating with well known designers, has in recent years
branched out of its core H&M brand into new chains, following
the example set by Inditex.
The group, which is expanding in China, the Unites States
and Russia and plans to enter five new markets, said it remained
positive on prospects for continued growth.
($1 = 6.9595 Swedish crowns)
(Addtional reporting by Anna Ringstrom and Sandra Jansson;
Editing by David Holmes and Mark Potter)