By  on September 29, 2005

PARIS — Hennes & Mauritz of Sweden on Wednesday posted better than expected third-quarter profits, lifted by fewer markdowns and higher prices.

Europe's largest specialty retailer said earnings in the three months ended Aug. 31 climbed 36 percent to 3.32 billion Swedish kronor, or $434.1 million, from 2.45 billion kronor, or $326.3 million, a year ago, while sales rose 18 percent to 15.16 billion kronor, or $2 billion, from 12.83 billion kronor, or $1.7 billion. Dollar figures are at the average exchange rate.

Sales in August gained 17 percent at comparable currency rates, H&M said.

The figures indicate Europe's two fast-fashion giants — H&M and Spain's Inditex, which runs the Zara chain — continue to defy Europe's sluggish retail environment, dogged by high unemployment and weak consumer confidence.

Last week, Inditex said its Zara stores propelled third-quarter profits ahead 40 percent as sales gained 21 percent.

H&M is also making progress in the U.S.

Carl-Henric Enhorning, head of investor relations, said on a conference call the retailer turned a "small profit" in the quarter at its U.S. operations after a "small loss" last year.

Through the first nine months, H&M christened 76 new stores, including five in the U.S. and two in Canada. By yearend, the company expects to have opened 126 new doors.

Enhorning said average prices increased about 1 to 2 percent in the quarter, as more "dressy and tailored" items and "better quality garments" infiltrated the mix.

H&M also recently launched a premium denim collection — &Denim — underscoring the retailer's efforts to move quality and prices slightly upscale.

Enhorning said sales of the autumn collection had started well. He said the company expected a windfall from the one-off Stella McCartney designed collection that would be introduced in November.

Last week, H&M ditched an advertising campaign slated to launch McCartney's designs after the model, Kate Moss, become involved in a scandal over her alleged drug use.

Though H&M's results came in ahead of analysts' expectations, the firm warned that the revival of some quota regulations would "make the buying process more difficult" and have a "negative influence on [short-term] gross profit."Enhorning said garments that were held hostage in European ports earlier this year during a quota snafu now all had been delivered.

H&M sources about 60 percent of its production in Asia, with half of that sourced in China, and the rest sourced in Europe.

Enhorning said H&M already had moved some of its production from China to neighboring Asian countries.

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