(Corrects typographical error in headline)
* July same-store sales -3 pct yr/yr, worse than expected
* July total sales +7 pct yr/yr, worse than expected
* Analysts say fewer markdowns hit sales but support margins
* Shares down 2 pct
By Anna Ringstrom and Fanny Modin
STOCKHOLM, Aug 17 (Reuters) - Hennes & Mauritz (HMb.ST), the world’s third-biggest clothing retailer, reported on Monday a bigger-than-expected 3 percent drop in year-on-year sales at established stores in July.
The average forecast in a Reuters poll had been for a 1 percent drop. Total sales at the Swedish budget fashion chain were up 7 percent, undershooting a forecast 9 percent rise.
Weak consumer sentiment during the global downturn has hit retailers hard, but there have recently been some signs of improvement, with a return to economic growth in the second quarter for France, Germany and Japan, the last of which H&M entered last year. [ID:nLD331672] [ID:nT212505]
“The figures were slightly disappointing,” said Anne Critchlow, analyst at Societe Generale. “The German retail market hasn’t been bad, so we were expecting a higher number.”
Clothing sales in Germany, H&M’s largest market, edged up 2 percent in July, according to industry journal Textilwirtschaft.
European Central Bank Governing Council member Axel Weber said on Sunday the German economy had bottomed out, but warned that the financial crisis may not be over yet. [ID:nLG265279]
H&M and Spanish Inditex ITX.IC, Europe’s biggest clothing retailer, which owns the Zara chain, have so far weathered the downturn better than mid-market rivals such as Britain’s Marks & Spencer (MKS.L) and Next (NXT.L), helped by a focus on low-cost, fast-moving fashions, and geographic spread.
Shares in H&M were down 2.2 percent at 405 Swedish crowns at 0900 GMT, underperforming a 1.4 percent fall in the DJ Stoxx European retail index .SXRP.
“This (sales data) is slightly worse than expected, but no drama,” said an analyst who declined to be identified. “H&M is not as active as its competitors when it comes to markdowns, which is bad for like-for-like sales, but good for margins.”
“The company has its stocks well under control and defends its margins,” said another analyst.
In late June, H&M reported forecast-beating March-May profits. But like-for-like sales in May, and also in June, fell more than expected. [ID:nLO363540] [ID:nLF56699]
Main rival Inditex, which in June reported a drop in first-quarter net profit that roughly matched expectations, is due to report fiscal second-quarter earnings on Sept. 16. [ID:nL51037188]
H&M, which in June signed up luxury shoe maker Jimmy Choo Ltd as the latest in a string of high-profile guest designers, has over 1,800 shops in more than 30 countries. (Editing by Simon Jessop/Will Waterman)