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H&M Stays Aggressive

The Swedish fast-fashion retailer laid out a string of openings for its H&M, COS and & Other Stories formats.

Hennes & Mauritz AB is keeping its foot on the expansion accelerator.

The Swedish fast-fashion retailer said Thursday that it recently opened its 3,000th store, in Chengdu, China, and laid out a string of openings for its H&M, COS and & Other Stories formats in locations ranging from Australia to Turkey to Singapore.

In the year ended Aug. 31, the retailer opened 215 outlets and entered Chile, Lithuania, Serbia and Estonia.

October will see H&M’s launch in Indonesia via a franchise agreement, as well as a flagship in a central location in Rome. In November, the retailer will unveil a megastore in New York’s Times Square.

In 2014, the company will open its first store in Australia, a 54,000-square-foot flagship in Melbourne’s former General Post Office building, and in 2015, plans are under way for its first South African outlet, in a new mall in Johannesburg, the company’s head of investor relations Nils Vinge said during a conference call to discuss the group’s third-quarter results.

Expansion continues to be ramped up for H&M’s brands COS and & Other Stories, which “continue to develop well,” according to Vinge.

COS will enter Turkey, Switzerland and Singapore in the fourth quarter and break into the U.S. next year, with a store in New York’s SoHo, he said. The SoHo store will be located at 129 Spring Street Meanwhile, the format & Other Stories is to open between 15 and 20 stores in 2014.

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The aggressive expansion plans and strong financial results failed to allay concerns among analysts of growing competitive pressures on H&M, where increased sales in Asia and certain European markets drove third-quarter profit and revenue growth.

The company said after-tax profits in the three months to Aug. 31 were up 22.3 percent to 4.43 billion Swedish kronor, or $673 million, on the back of a 12 percent increase in local-currency sales.

All dollar figures are calculated at average exchange for the period to which they refer.

“Our well-received summer collections have resulted in strong sales development in the quarter, particularly in Asia but also in a number of European markets,” chief executive officer Karl-Johan Persson said.

In Europe, the company registered sales growth notably in Germany, France, Italy, Denmark, Poland and Russia, while in Asia, increases were especially strong in China, South Korea and Singapore.

“We have also seen the very successful launch of our online store in the U.S. in August and can see that our offering stands up well in the world’s largest online market,” Persson added.

Operating profit in the period rose 19.8 percent to 5.76 billion Swedish kronor, or $875.5 million.

H&M confirmed that sales including value-added tax in the quarter rose 12 percent in local currencies, as reported. Net sales converted into Swedish kronor grew 11.2 percent to 32.04 billion, or $4.87 billion, and sales in comparable units increased 2 percent.

The current quarter is also off to a strong start so far, with local-currency sales in the period from Sept. 1 to Sept. 24 up 8 percent, although H&M warned that the full month of September would have a negative calendar effect of about 2 percentage points, and that the same prior-year period was particularly strong.

H&M said that in the first nine months of its fiscal year, net profit was down 0.3 percent to 11.54 billion Swedish kronor, or $1.75 billion. Sales in the nine-month period to August were up 4 percent to 92.07 billion Swedish kronor, or $13.94 billion. In local currencies, sales grew 8 percent, while in comparable units they decreased 2 percent.

Still, analysts remained wary about H&M’s long-term potential.

“Despite these results, we continue to believe H&M is faced with increasingly competitive markets in many of their core countries, which we expect to lead to margin deterioration as the increased proliferation of value apparel retailers results in pricing pressure,” Sanford Bernstein analysts Jamie Merriman, Anthony Sleeman and Richard Wielechowski wrote in a research note.

Shares of H&M closed Thursday up 6.74 percent to 281.7 Swedish kronor, or $42.61 at current exchange, on the Stockholm Stock Exchange.