H&M surprises market with strong quarterly profit

Swedish high-street clothing chain H&M reported a 13.6 percent rise in second quarter net profit Wednesday to 3.93 billion kronor ($640 million), boosted by favourable

exchange rates and strong sales in May.

Sales excluding value-added tax (VAT) rose by eight percent to 21.6 billion kronor during the quarter, H&M said in a statement.

“The continued weak US dollar led to lower buying costs which had a positive impact on the gross margin,” it said.

The news was a pleasant surprise for the market, sending the share price up by more than seven percent to 343 kronor on the Stockholm stock exchange in an overall market down by 0.98 percent.

Analysts had expected a weak report from H&M — whose share price has tumbled from a record high of 450 kronor in April 2007 — given the global economic downturn and amid speculation that the company’s strong growth run was untenable and due to come to an end.

But H&M said that after bleak sales in March and April, turnover in May rebounded by 25 percent, as better weather sparked consumers’ interest in the chain’s summer collection.

The group added that its acquisition in March of 60 percent of Fabric Scandinavian, best known for its Cheap Monday brand of jeans and casualwear, was consolidated in H&M’s accounts as of May 1, buoying sales for that month.

In the six-month period December-May, sales rose by 12.3 percent from a year earlier to 41.3 billion kronor.

By geographic zone, sales including VAT rose by 13.2 percent on its main market Germany, by 14 percent in France and by five percent in Sweden, but fell by two percent in Britain.

The company said that during the six-month period, it opened 59 new stores and closed eight, giving it a total of 1,593 stores worldwide at the end of May compared to 1,420 a year earlier.

In the second half of its fiscal year, which ends in November, it plans to open 139 new stores, most of them in Germany, the United States, Spain, France and Italy.

At the end of 2008, H&M aims to have 190 more stores than at the end of last year.