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H&M Profit Slips 15 Percent in Quarter

Swedish retailer plans to increase net store openings this year to 265 from 250 previously.

By
with contributions from Alex Wynne

PARIS — Hennes & Mauritz AB said net profit fell 15 percent in the third quarter as economic uncertainty and bad weather kept customers out of stores in key markets, triggering intense price competition between fast-fashion retailers.

Though its margins have come under pressure, the Swedish retailer said it had gained market share and planned to ramp up the rate of store openings before the end of the year.

In what is likely to come as a disappointment to U.S. consumers, however, H&M has decided to delay the launch of its e-commerce site there by around six months to fall 2012.

“We need more time for such a big project. We want to make sure everything is in place to ensure the best possible reception,” Nils Vinge, head of investor relations, said during a conference call.

During the three months ended Aug. 31, net income fell to 3.59 billion Swedish kronor, or $564 million, from 4.24 billion kronor, or $564 million, during the same period in fiscal 2010. Dollar amounts are calculated at average exchange rates for the periods in question, which saw sharp currency fluctuations.

“H&M continues to gain market share in a challenging environment for the fashion retail industry,” stated chief executive officer Karl-Johan Persson.

“We have a strong business concept, a strong financial position and we are continuing to grow with high profitability. We are increasing our expansion for full-year 2011 to approximately 265 stores, from the original planned 250,” he added.

The company is opening more stores than expected in China, Romania and Croatia. It recently opened its first store in Singapore and will add Morocco and Jordan by yearend, followed by Bulgaria, Indonesia and Thailand in 2012.

Gross margin fell to 58.6 percent in the third quarter from 60.5 percent at the same time last year, squeezed by higher purchasing costs due to inflation in sourcing markets, high cotton prices and a negative U.S. dollar effect. Vinge noted cotton prices have come down since March, but remain historically high.

H&M had published preliminary data showing third-quarter sales excluding VAT amounted to 26.91 billion kronor, or $4.2 billion, versus 26.89 billion kronor, or $3.6 billion, during the same period a year earlier.

Though it maintained markdowns broadly stable versus last year, H&M described the high street as increasingly cutthroat.