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How Swede It Is: H&M Profits Up 17%, New Formats on Horizon

Hennes & Mauritz is on a roll -- and it wants to keep it that way.

PARIS — Hennes & Mauritz is on a roll — and it wants to keep it that way.

The Swedish fast-fashion retailer, which reported a 17 percent increase in net profits in 2006, said Thursday that it would push into the home textile market via its H&M stores. Meanwhile, the company revealed the name of its new, more expensive chain: Collection of Style, or COS. The first COS store will open in March on London’s Regent Street.

The new brand will comprise women’s and men’s collections. H&M said about 10 stores were scheduled to bow during the year in the U.K., Germany, the Netherlands and Belgium. There are no plans to open COS stores in the U.S. at this point, a spokeswoman said.

“COS will be modern, stylish and chic,” said Nils Vinge, the retailer’s head of investor relations, in a conference call. “The business concept is fashion and quality at the best price.”

Vinge explained COS would be grown conservatively in the first year, and expansion would be contingent on the success of the debut. He said store sizes would be about 5,000 square feet.

“We’ll look at how the first 10 stores are performing [before deciding how many more to add],” said Vinge. “It’s hard to say at this point how aggressive the rollout will be.”

When asked if COS would collaborate with designers, as H&M has done with Stella McCartney and Karl Lagerfeld, Vinge said, “We’re not ruling anything out.”

He suggested the assortment would be geared to European customers with more fast-fashion items than in H&M’s existing stores.

H&M said it would launch H&M Home, a home textiles brand, starting with Internet and catalogue sales this fall in several key European markets. The company said H&M Home stand-alone stores could follow.

Other growth avenues for H&M this year include an extended women’s shoe assortment, which is expected to be launched in 200 H&M stores this spring, and links with celebrities and designers.

Besides its successful collaborations with top designers, including the fall collection by Viktor & Rolf, which Vinge said “exceeded expectations,” H&M is preparing to introduce a second collaboration with pop singer Madonna.

The “M by Madonna” line, a follow-up to the retailer’s Madonna tracksuit launched in August, is slated to hit stores in March and will include tailored items, dresses and accessories.

Buoyant holiday sales led H&M to a better than expected end of the year. H&M said profits in the 12 months through December after financial items rose 17 percent, to 15.81 billion Swedish kronor, or $2.15 billion, from 13.55 billion kronor, or $1.82 billion, in 2005, beating most analysts’ expectations.

Sales in the fourth quarter rose 8 percent, to 19.51 billion kronor, or $2.65 billion, from 18.01 billion kronor, or $2.42 billion, in the corresponding period a year earlier, propelled by a 16 percent increase in December. Comparable-store sales gained 5 percent in the month.

H&M opened 168 stores last year, bringing its total units to 1,345. Vinge said another 170 stores would open in the next year, the majority in the U.S., Spain, Italy, Germany, the U.K. and Canada.

Vinge noted improvements in H&M’s supply chain and said the firm was moving to a “regional grouping” concept, meaning products will be increasingly allocated to regional supply centers rather than centers in countries themselves.

Germany, which Vinge said remained challenging, continued to be H&M’s largest market, clocking sales of 20.18 billion kronor, or $2.74 billion, last year, a gain of 3 percent on 2005.

The U.K. was second, with 9 percent growth, to 6.77 billion kronor, or $919.8 million, followed by Sweden, which advanced 8 percent, to 6.69 billion kronor, or $908.9 million.

Vinge said the U.S. had become the firm’s fifth-largest market with sales up 27 percent last year, to 5.11 billion kronor, or $694.2 million, and was moving “in the right direction” in profitability.

H&M’s shares gained 6.4 percent in trading in Stockholm to close at 366.50 kronor, or $49.79.

The retailer has been accelerating projects and celebrity tie-ups in recent years as competition in the fast-fashion segment grows stiffer. One of its key competitors, Zara, has had a Zara Home format for several years, and Mango, a Spanish fast-fashion chain, broke into the American market in 2006.

Inditex, the Spanish conglomerate that runs Zara, surpassed H&M in sales last year and more American chains are putting higher design input into their mass assortments or introducing new formats. For example, American Eagle Outfitters launched Martin + Osa and aerie, its innerwear chain, and J. Crew has introduced the children’s wear format Crewcuts as well as Madewell, which offers edgy sportswear.