Popular fashion lines boost Hennes and Mauritz

Swedish mass fashion retailer Hennes and Mauritz (H and M) reported soaring third-quarter profits on Wednesday, boosted by a collection that was a hit with shoppers, limiting the need for price reductions.

Net profits during the period June-August rose by 35.6% to 2.16 billion kronor (230.4 million euros, 277 million dollars), up from 1.59 billion kronor a year ago.

Sales including VAT rose by 18.2% during the period to 17.8 billion kronor from 15.1 billion a year ago. Excluding VAT, sales rose by the same amount to 15.2 billion.

“Due to a well-balanced stock-in-trade the spring/summer season has ended with a lower price reduction level compared to last year,” H and M said in a statement.

“The sales of autumn garments have started well during the year,” it added.

The results were also bolstered by improved cost efficiency and lowered quota costs.

The price of the H and M share initially rose by 2.4% on the strong figures to 276 kronor, but it later fell back to 271.50 kronor as analysts said they did not believe the 58.8% gross margin level could be sustained.

“The result was better than expected because the gross margin was so strong. But it’s been driven by short-term factors that won’t be there next year, such as easy comparisons in terms of discount rates, less quota costs, currencies, and lower purchasing costs in general because of China,” Mattias Karlkjell at ABG Sundall Collier told AFX News.

“Once the gross margin increase is behind us then earnings momentum will clearly slow down, that’s the key thing,” he said.

H and M recalled that it was affected by a textile dispute between the European Union and China during the quarter and some of its garments made in China were blocked from entering the EU. These articles have now been delivered to stores, it said.

“The re-establishment of the quota regulations makes the buying process somewhat more difficult and can in a shorter perspective have a negative influence on the gross profit, but in the longer perspective it will have no effect on the group’s result,” it said.

H and M made headlines last week when it dropped British supermodel Kate Moss from a pre-Christmas advertising campaign after allegations that she took cocaine.

Photos of Moss, which had already been shot for the youth fashion chain’s autumn-winter collection, designed by Stella McCartney, will be replaced by a different campaign when it is launched on November 10th.

The company has not commented on any possible commercial consequences ensuing from the scandal.

The group said it had 1,134 stores at the end of the period. It plans to open 70 stores in the fourth quarter, most of them in North America but 14 in Germany.