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H&M Profits Fall 12 Percent in Quarter

Amid economic turbulence, H&M's like-for-like sales slip 5 percent.

PARIS — Sweden’s Hennes & Mauritz on Thursday said currency effects resulted in a decline in first-quarter profits even as revenues rose, driven by store openings and robust business in Asia.

Group profits in the three-month period dropped 12 percent to 3.11 billion kronor, or $357.7 million, dampened by adverse currency exchange rates. That missed most analysts’ expectations and was the first time in five years H&M reported a drop in quarterly profits. The fall also was steeper than that registered by H&M rival Inditex Group, owner of Zara, which on Wednesday reported a 3.5 percent fall in fourth-quarter profits.


Investors reacted by sending H&M stock down 3.5 percent to close at 316.50 kronor, or $39.11, in trading on the Stockholm stock exchange.

Sales in the quarter grew 18 percent to 23.3 billion kronor, or $2.67 billion, bolstered by 13 stores opened in the period.

On a like-for-like basis, however, sales fell 5 percent, H&M said, suggesting the chain is not immune to economic turbulence in some of its key markets, including France and the Netherlands.

H&M said sales were “affected by continued restrained consumption due to the current recession” and that the strengthening of the U.S. dollar had further complicated business in the quarter.

Nonetheless, H&M investor relations manager Nils Vinge said that H&M considered its performance “good” considering the “challenging and tough market.”

Vinge said the value of the dollar against the kronor had a negative impact of approximately 2 percentage points on its gross margin. Gross margin in the quarter was 56.6 percent, down from 59.6 percent last year. Excluding adverse currency effects, H&M said gross margin would have been 60.8 percent.

In February, like-for-like sales fell 8 percent. H&M attributed this to a negative calendar effect in the month and tough comparables. H&M sales rocketed 24 percent in February last year.

H&M has been opening aggressively in the United States, where it now operates 169 stores. Sales in America dropped 1 percent in the quarter.

Vinge said the U.S. retail environment “was challenging” for H&M with weak sales due to the business climate there. He said H&M still remained committed to opening stores in America and that it viewed the market as holding great potential.

Vinge said H&M signed a deal to open its first stores in Florida later this year. Considering the environment, he said H&M had skewed the majority of its openings this year to the second half in hopes market conditions will improve.

China, where H&M now has 13 stores, continued to see brisk business, with sales increasing 21 percent in local currencies. Vinge said H&M would open its first stores in Beijing later this year.

Greece, Slovakia, Ireland, Italy and Portugal also turned in double-digit sales increases, but growth slowed in the Czech Republic and Poland as those countries deal with economic hardship linked to the credit crunch.

Vinge said the reception was warm for two new stores in Moscow opened earlier this month. He said H&M would continue to open stores in the Russian capital and that it was also gearing up to open its first store in St. Petersburg.

H&M said it would open its first store in South Korea next year and that it had inked a franchise agreement for stores in Jordan to open next year.