* Flat Q2 local currency sales lag 0.5 pct expected by analysts
* Q2 net sales excluding VAT up 1 pct, lagging 3 pct consensus
* Sales stalling at core brand stores (Adds detail, background)
By Anna Ringstrom
STOCKHOLM, June 15 (Reuters) - H&M reported flat sales growth for a second straight quarter on Friday as the world’s second-largest fashion retailer grapples with slowing traffic at its core brand stores.
Local-currency sales including VAT in the March-May period were unchanged from a year earlier, below the 0.5 percent increase expected by analysts in a Reuters poll.
H&M shares fell 3.5 percent in early trade.
The Swedish retailer has seen sales stall, pretax profit shrink and its shares fall over the past couple of years due mainly to slowing traffic at its budget H&M stores, which account for the bulk of group business.
Its other brands include the mid-market COS, & Other Stories and Arket.
H&M has guided for a decline in comparable-store sales this year, with stores expected to return to growth in 2019.
H&M said sales excluding VAT rose 1 percent to 52.0 billion crowns ($5.94 billion) in the second quarter, lagging the 3 percent rise to 53.0 billion expected by analysts.
Its top rival Inditex, owner of Zara, on Wednesday reported local-currency sales growth of 7 percent for its February-April quarter and 9 percent growth in the following six weeks.
“H&M has reported Q2 sales slightly softer than consensus forecasts today which we think will raise concerns about additional markdowns and operating deleverage heading into the HY results on June 28. We remain cautious on H&M,” said RBC analyst Richard Chamberlain, who holds an “underperform” rating on the shares.
“H&M has now posted around three years of negative LFL (like-for-like) sales yoy (year on year). For Q2 we estimate LFL sales were down 4 percent to 5 percent yoy.”
Group wide H&M said it had 4,801 stores at the end of the quarter, up a net 7 percent from a year earlier.
H&M in 2017 launched a review of its mix of stores and brands, with more H&M store closures and faster expansion with its newer brands.
The launch this week of multi-brand discount marketplace Afound takes the number of H&M’s independent brands to 9, in line with Inditex.
But around 9 of 10 stores are still the main H&M budget brand while at Inditex, Zara accounts for fewer than 4 of 10 of its stores.
H&M is due to publish its full fiscal second-quarter earnings report on June 28.
Main owner and chairman Stefan Persson on Thursday was quoted as saying that speculation that H&M founders the Persson family were eyeing a buyout of the retailer were unfounded.
$1 = 8.7495 Swedish crowns Reporting by Anna Ringstrom; editing by Helena Soderpalm and Jason Neely