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H&M Second-Quarter Profit Beats Estimates on U.S. Sales

Hennes & Mauritz AB, Europe’s second-largest clothing retailer, posted the strongest profit increase in seven quarters as sales rose in the U.S. and Asia.

Net income gained 23 percent to 5.22 billion kronor ($750 million) in the three months through May, the Stockholm-based company said in a statement today. That beat the 4.86 billion-kronor average estimate of 14 analysts compiled by Bloomberg.

H&M and competitors such as Inditex SA are boosting sales and profit as hard-pressed consumers turn to budget fashions to save money. Inditex, owner of the Zara chain, last week reported a 30 percent gain in earnings, also the strongest profit growth in seven quarters. H&M, which sells dresses for less than 20 euros ($25), has focused store expansion on Asia and the U.S. to help offset a slowdown in European consumer spending.

“This is a strong update from H&M, which in our view has for the first time for over 18 months delivered a better-than-expected performance in both sales and margin,” Gillian Hilditch, an analyst at JPMorgan Cazenove, wrote in a note.

H&M rose as much as 4.1 percent in Stockholm trading and was up 4 percent at 239.60 kronor as of 3:26 p.m., the highest level in two months. The stock has advanced 8.1 percent this year, trailing Inditex’s 22 percent increase.

Margin Beat

H&M said the gross margin was unchanged at 61.7 percent of sales in the second quarter as markdowns remained at the same level as last year. Analysts expected the profitability gauge to narrow to 61 percent, according to the average of 13 estimates.

The retailer said it will open seven to 10 stores called “& Other Stories” next year. Prices at the new chain will in the middle of those of the H&M and COS chains, the company said. The chain will have separate design and buying teams based in Paris and Stockholm, the company said.

The Swedish retailer said on June 15 that second-quarter sales rose 15 percent to 31.7 billion kronor, beating estimates.

H&M repeated today that it plans to add about 275 stores in the financial year through November, with China, the U.S. and the U.K. being the largest areas for expansion. The retailer, which had 2,575 stores as of May 31, also sees opportunities in Germany, France and Italy and will start online sales in the U.S. in the fall, it said. H&M stores will open in five new markets this year and the company has signed contracts to open outlets in Estonia and Indonesia in 2013.

Expansion Intact

“Our expansion plan remains intact,” Chief Executive Officer Karl-Johan Persson said in a statement today. “The spring collections have been well received by our customers.”

The retailer said it continues to invest in Greece as it looks beyond a difficult economic situation in southern Europe. The company is also looking at specific measures to take if Greece exits the euro, Persson said, without giving more detail.

“We continue to grow in Greece and to open new stores,” Persson said in an interview. “Even if we may lose some sales, we still gain market share” in that market, as well as Spain and Italy, he said.

-- With assistance from Janina Pfalzer in Stockholm. Editors: Paul Jarvis, Thomas Mulier

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