H&M profit beats forecast

STOCKHOLM (Reuters) - Fashion chain Hennes & Mauritz (H&M) HMb.ST posted better-than-expected profits and margins for the second quarter on Thursday, and said currency swings were becoming less costly.

Shares in H&M edged up 0.9 percent by 0750 GMT (3:50 a.m. EDT), outperforming the DJ Stoxx European retail index .SXRP, which was down slightly.

The world’s third-biggest clothing retailer by sales said its gross margin -- a key measure of cost control -- came in at 61.0 percent, beating analysts’ forecast of 60.2.

“Let’s call it a very solid report from H&M today where a lot of focus was on the gross margin,” said Soren Lontoft Hansen, an analyst at Sydbank.

H&M said second-quarter price markdowns were the same as a year earlier, and currency hedges continued to put downwards pressure on the gross margin. But those effects were less damaging than in the first quarter and were expected to decrease further in the current quarter.

H&M has, along with Spain-based rival Inditex ITX.MC, done better than mid-market peers such as Britain's Next NXT.L and Marks & Spencer MKS.L because of their focus on low-cost, fast-moving fashions and their international footprints, and the Swedish retailer is seen as well positioned to weather the downturn in consumer spending.

Pretax profit rose 6.4 percent to 5.78 billion crowns ($735 million) in the quarter ended May 31, versus a mean forecast of 5.67 billion crowns in a Reuters poll.

Hansen said hedging and a stronger dollar still weighed on H&M, but the company managed to compensate by curbing transport and raw material costs. “And I think that going forward we will see H&M having some economies of scale in terms of sourcing,” he added.

Anders Wiklund, analyst at Evli Bank, said H&M’s market position and powerful brand would generate continued success. “I think they are going to continue to do well -- they’re at the top of their class.”

Sales in May, the final month of its second quarter, were unchanged from a year earlier versus an expected 1.4 percent rise. Turnover in stores open a year or more fell 9 percent compared with a forecast fall of 8.5 percent.

“That is history now,” said one analyst, referring to the May numbers.

H&M only gives whole numbers for the percentage change in sales and does not provide a currency figure.

($1=7.862 Swedish crowns)

Reporting by Veronica Ek and Katarina Gustafsson; Editing by Mike Nesbit and Rupert Winchester