H and M announces China store openings

Swedish retail clothing giant H and M will open its first stores in China next year, the company announced on Wednesday as it reported an eight percent rise in second quarter net profit to 3.92 billion kronor.

H and M, which currently has 1,244 stores, said it would open with one store each in Shanghai and Hong Kong in 2007.

The announcement was big news for the company, said analyst Aasa Mossberg at Kaupthing Bank, who said she expected H and M to open more stores in the Asian country.

“Once they decide to go in somewhere, they tend to go in big, in contrast to Inditex (which owns rival Zara) which has 30 markets with five stores or less. H and M tends to go into fewer markets but with a bigger bang,” she said.

The news came as the group reported its earnings for the March-May period.

The net profit result was above average market expectations of 3.73 billion, according to a survey of analysts by SME Direkt.

The good news sent the H and M share upwards on the Stockholm stock exchange, rising by 3.68 percent to 268 kronor in mid-morning trading.

While overall sales rose by 10 percent to 17.06 billion, H and M said spring fashions stayed on the racks in March and April because of chilly weather.

“Second quarter sales were weak. Even if the trend during the quarter was rising, the total sales level was not reached as planned,” the retailer said, adding that it had taken market shares in “basically all markets” during the first six months of the year.

Operating profit rose to 3.79 billion kronor from 3.52 billion. Gross margins slipped slightly to 59.6 percent from 60.1 but were in line with SME’s consensus expectations.

In addition to the store openings in China, the company said it would also add 100 new stores by December 1st, mainly in the United States, Spain, France, Britain, Canada and Germany.

The company also plans to launch a new upmarket chain under a separate brand name in 2007 with 10 new stores.

“The stores will offer a niched assortment for women and men in a higher

price segment,” H and M said.

The group also plans to expand its women’s shoe range through collaboration with external experts in design and production. The extended range will launch in spring 2007 and will initially be sold in 200 H and M stores in all markets.

The number of stores carrying shoes will then gradually increase.