March 15, 2013 / 7:32 AM / in 4 years

UPDATE 2-H&M's underlying sales drop again

3 Min Read

(Refiled to modify headline)

* Like-for-like sales -3 pct vs forecast -2 pct

* Total including new stores rise 5 pct

* Says calender effect weighed in Feb

* Q1 sales 28.4 bln SEK vs forecast 29.0 bln

By Mia Shanley

STOCKHOLM, March 15 (Reuters) - Hennes & Mauritz reported a bigger than expected fall in underlying sales last month, the fifth straight month of year-on-year declines, as the world's second largest fashion retailer lags behind larger rival Inditex.

The Swedish firm has struggled with weak consumer spending in Europe, where it has the bulk of its business, and with a strong rise in the value of the Swedish crown.

In contrast Inditex's aggressive expansion further afield with its Zara and other brands has helped it ride out the European downturn better than many competitors.

H&M said its same-store sales in February fell 3 percent in local currencies from a year earlier, worse than the average forecast of a 2 percent drop given by analysts in a Reuters poll.

Total sales in February, which includes sales in stores open less than a year, were up 5 percent, also missing forecasts for a 7 percent rise.

The group said sales were negatively affected by just over 3 percentage points due to fewer shopping days compared to last year's leap year.

But with under half of Inditex's 6,000 stores globally, H&M continued to lag its arch rival in terms of performance, said Chris Chaviaras, an analyst at Barclays.

"Still, H&M has a very strong brand value - they just need to reinvent it," he added.

H&M's shares were down 1 percent at 231 crowns by 1012 GMT, a drop of nearly 8 percent from a year ago.

Inditex, which has seen its shares gain 50 percent in the same period, earlier this week posted a sharp rise in full-year profits as its aggressive expansion into markets like China offset woes in Europe.

Its 2012 net profit rose 22 percent while H&M's rose 7 percent.

H&M has also been branching out from its core brand, as well as investing in online shopping and continuing to open stores. It now includes H&M Home, COS, Monki, Weekday and Cheap Monday.

February is the final month in the retailer's fiscal first quarter and the company said sales in the period totalled 28.4 billion crowns ($4.41 billion), short of an average forecast of 29 billion crowns given by analysts in a Reuters poll and down from 32.5 billion in the previous three months.

H&M said the quarterly sales figure was also depressed by substantial currency conversion effects due to the strengthening of the Swedish crown. The full quarterly results are due to be announced on March 21.

H&M, present in 48 markets, has said it would open a net 325 new stores this year, with most planned in China and the United States. It will also launch online sales in the United States. ($1=6.4435 Swedish crowns) (Additional reporting by Niklas Pollard; Editing by Greg Mahlich)

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