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H&M Same-Store Sales Drop in July

New H&M stores boost increase to 7 percent for month.

Swedish fast-fashion chain Hennes & Mauritz on Monday reported a worse-than-expected dip in same-store sales as it continues to feel the effect of consumers’ shrinking budgets.

In July, sales from stores open for at least a fiscal year declined 3 percent compared with expectations of a 0.5 percent fall.

Total sales, which include sales from new stores, rose 7 percent, helped by H&M’s continued expansion into new markets, such as Japan and Russia. At the end of July, H&M operated 1,828 stores, compared with 1,601 a year earlier.

“On the back of these results, we do not expect consensus forecasts to change,” said Citi analyst Richard Edwards, noting H&M’s July sales are consistent with his forecast of a 4 percent sales decline in the second half of 2009.

H&M, the world’s third-largest fashion chain by revenue behind U.S.-based Gap Inc. and Spain’s Inditex, doesn’t provide actual sales figures, but only releases percentage changes for its monthly sales updates.

In June, H&M’s comparable sales slipped 5 percent while total sales were up 4 percent, suggesting markets remain tough despite some early signs of recovery from the downturn.

Although the Swedish company has managed to weather the economic slide better than mid-market competitors thanks to its low prices, on-trend designs and fast-moving inventories, it hasn’t been immune to the slowdown in consumer spending brought on by the recession. However, H&M has resisted the temptation of sizable markdowns in order to preserve margins.

In the second quarter, the company continued to gain market share, reporting a better-than-expected 6.4 percent increase in net profits, helped by store openings and successful spring collections.

Gross margin, a key indicator of retailers’ profitability, declined to 61 percent from 62.9 percent in the second quarter.

The Swedish retailer is due to unveil a one-off collection by red-carpet staple Jimmy Choo at selected H&M stores in November.