* Sept-Nov pretax 6.80 bln SEK vs consensus 7.18 bln
* Gross margin 61.9 pct vs consensus 62.5 pct
* Markdowns higher than a year ago, seen higher also in Q1
* Dec comparable sales +4 pct vs consensus +3 pct
* Shares flat vs European retail sector up 0.4 pct
By Anna Ringstrom and Veronica Ek
STOCKHOLM, Jan 26 World No.2 fashion
retailer Hennes & Mauritz said a gloomy economic
outlook would keep demand subdued this year and discounting to
shift unsold stock, which led to a surprise drop in
fourth-quarter profit, had continued into January.
The Swedish group, whose main competitor is Zara
brand-owner Inditex, said on Thursday unseasonably warm
weather was partly responsible for a build up in stock and
But Hennes & Mauritz (H&M), which makes the bulk of its
sales in Europe, also joined rivals in highlighting the weakness
of consumer demand as disposable incomes are squeezed by higher
prices, muted wages growth and austerity measures, and as
shoppers worry about the impact of the euro zone debt crisis.
"Most indicators suggest that the macro-economic climate in
many of our markets will continue to be tough during 2012," said
chief executive Karl-Johan Persson.
While Germany, H&M's main market, is expected to avoid
recession this year, forecasters believe conditions are getting
tougher for most euro-bloc countries.
France and Italy, the region's second and third biggest
economies, both published subdued consumer confidence figures on
Thursday, contrasting with a more upbeat results from Germany.
H&M, with around 2,500 stores in 43 countries, has been
cutting prices in a bid to gain market share, while expanding
into faster-growing emerging markets.
Persson said the price cuts were working, with H&M taking
market share in its biggest markets -- Germany, the United
States and Sweden -- and the group would press ahead with its
expansion, opening 275 new shops in its 2011/12 financial year,
including its first in a Latin American market, Mexico.
However, Liberum analysts were sceptical whether the price
cuts were having a big impact against a backdrop of weak
consumer demand, and worried about the firm's ability to hold
its dividend at current levels.
Espirito Santo analysts were also concerned the price cuts,
coupled with rising labour costs, would offset the expected
benefits to profitability from lower cotton prices.
"A disappointing start to the year," they said of H&M's
performance, keeping a "sell" rating on the stock.
At 1035 GMT, H&M shares were flat at 224.2 Swedish crowns,
underperforming the STOXX Europe 600 retail index.
Analysts mostly prefer Spain's Inditex, which has a stronger
presence than H&M in emerging markets and sources a lower
proportion of goods from Asia, where labour costs are surging.
STRAIGHT PROFIT FALLS
H&M's pretax profit fell for the fifth straight quarter to
6.8 billion crowns ($997.2 million) in the September-November
period, down from 7.2 billion a year earlier, and lagging a mean
forecast in a Reuters poll for no change from a year earlier.
The gross margin shrank to 61.9 percent from a year-earlier
63.2 percent against a forecast for 62.5 percent.
The group kept its dividend at 9.50 crowns. Some analysts
had forecast a cut for the first time in its history.
Persson said markdowns in relation to sales were higher than
a year ago and would also probably rise in the first quarter.
Sydbank analyst Nicolaj Jeppesen said the pressure
on gross margins offset slightly better-than-expected December
"The better numbers for trade in December can mean
they are increasing discounts and I am not sure how good the
quality of their sales is in December. I am actually afraid the
gross margin in the next quarter will get a hit as well," he
Inventories were up 20 percent at the end of
November from a year earlier.
Sales in December, the first month of H&M's fiscal first
quarter, were up 13 percent year-on-year in local currencies,
against a forecast 12 percent.
Comparable sales, which excludes stores open less than a
year, were up 4 percent, against a forecast 3 percent. Sales
during Jan. 1-24 increased by 12 percent in local currencies.