H and M profits up 13 percent

Hennes and Mauritz, the Swedish fashion retailer known for its trendy yet affordable clothes, posted a 13 percent increase in third quarter profit after financial items to 3.768 billion kronor, supported by higher sales and unexpectedly strong margins.

The headline result was above average market expectations of 3.587 billion kronor, as recorded by SME Direkt.

Gross margins increased to 59.2 percent from 58.8 percent, and were well above SME’s consensus forecast of 58.2 percent.

“The bought-in margin has been improved by 0.7 percentage units compared to the same period last year, mainly due to a more efficient purchasing process that has led to lower buying prices,” said H&M.

It said price reductions have been higher than in the same period last year since the stock level, as previously notified, was slightly higher than usual at the beginning of the quarter.

But the company said problems with inventories are now over.

“The stock-in-trade, at the end of the period, is considered to be well balanced both in terms of volume and content,” it said.

Sales excluding VAT grew 11 percent to 16.754 bln kronor, but were slightly below the consensus forecast of 16.849. August sales increased 5 percent from a year earlier, above the 2.9 percent increase expected by SME Direkt.

H&M said it will add 80 new stores net in the fourth quarter, mainly in the US, France, Spain, Canada, the UK and Germany. During the corresponding period last year, 59 stores net were added.

The company will also extend its online and catalogue sales business after a successful launch in the summer of online sales in the Netherlands.

“The response was very positive and beyond H&M’s expectations”, it said.

H&M will now launch online sales in Germany and Austria this autumn.

The retailer said plans for its first store openings in Shanghai, Hong Kong, Greece and Slovakia and the launch of its shoe assortment in 200 stores, during spring 2007, are progressing according to plan.

It added that plans to launch a new upmarket store under a separate brand name in spring 2007 are also continuing, without adding further details.