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H&M growth falls below expectations

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12:55 CEST+02:00
Despite reporting higher third quarter profits, Swedish clothing chain H&M shares dropped due to slower-than-expected growth.

For the June to August period, the company posted a net profit of 3.33 billion kronor ($488.55 million), up five percent from the same quarter a year ago, it said in a statement.

Sales excluding value-added tax (VAT) meanwhile grew 11.6 percent to 20.87 billion kronor.

The results were below analysts' expectations of a net profit of 3.7 billion kronor and sales excluding VAT of 20.94 billion, according to a poll conducted by the Dow Jones financial news agency.

Following H&M's earnings report, the company saw its shares lashed on the Stockholm stock exchange, down 9.74 percent at 278.50 kronor in late morning trading Tuesday after opening down 11.36 percent, in a market up 0.22 percent.

"Sales ... have been affected by a weaker retail business in most markets," the cheap and chic clothing chain said, adding that it had also faced price inflation in countries where its goods are made as well as higher transportation costs.

It said however that "the negative effects have partially been offset by lower buying costs due to a relatively weak US dollar."

"Acting quickly during the quarter mostly through more active price reductions has led to a very satisfying level of stock-in-trade at the end of the quarter," the company added.

But the price reductions also contributed to weigh down H&M's margins, which stood at 60.8 percent during the period, down from 61.2 percent a year earlier.

Analyst Anders Wiklund at Evli Bank said the earnings report was "not extremely bad," but noted that expectations were "a bit high after a very good second quarter."

He did not expect the company to slash prices further, which would put more pressure on margins.

"I don't think they will lower prices that much, I think they will try to keep volumes lower to meet lower demand," he said.

For the past nine month period, the company said its sales had ticked in at 62.2 billion kronor, up 12 percent from 55.5 billion a year earlier, while its net profit grew 14.2 percent year-on-year to 10.2 billion kronor.

H&M said it had opened 85 new stores during the first three quarters of 2008, down from 99 new shops opened a year earlier, and had closed nine, down from 12 in the first nine months of 2007.

On August 31, the company counted a total of 1,618 stores worldwide, up from 1,432 a year earlier.

In the fourth quarter, H&M said it planned to open 114 new shops, most of them in Germany, the United States, Britain and Italy.

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