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H&M sees profits buckle

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08:57 CET+01:00
Sweden's clothing retail giant H&M has seen its profits plunge by 12.4 percent in the first quarter to 2.577 billion kronor ($321 million).

The group said on Thursday the slide was due to a weaker Swedish currency.

Sales in the December-February quarter rose 18 percent from the same quarter a year ago to 23.3 billion kronor but the net profit was affected by the krona's devaluation, it said.

From September to early March, the krona lost around 23 percent of its value against the euro and 42 percent against the dollar, as investors sought safe haven from the global economic crisis in bigger currencies. The krona has in recent weeks regained some ground.

"The profit decrease is related to the ... currency effects," H&M, which has significant buying operations in Asia in dollars, said in a statement.

The company explained that its contracts with subsidiaries were hedged on an ongoing basis to the krona four to six months ahead.

"Most of the subsidiaries' currencies have strengthened in relation to the krona during the first quarter," it said.

"As a consequence of the hedging, the company has not been able to benefit from the positive effect of slightly more than 500 million kronor which would otherwise have arisen in the gross profit," it added.

This had a negative impact of 2.2 percentage points on the gross margin, while the strengthening of the purchasing currencies, primarily the dollar, impacted it by around 2.0 points, the company said.

H&M's share price shed 5.03 percent to 311.50 kronor on the Stockholm exchange on the news, in an overall market down by 1.10 percent.

Analysts had expected a stronger net profit of 2.95 billion kronor, though sales came in a pinch higher than the 23.01 billion expected in a survey done by Dow Jones Newswires.

"The results are weaker than expected and this is due to currency effects, if we look at the gross margin," Evli Bank analyst Anders Wiklund told AFP.

At the operating level, earnings dropped 11.4 percent to 3.36 billion kronor, and margins fell from 59.6 percent a year earlier to 56.6 percent.

"The gross margin has been negatively affected by currency effects. Excluding these effects it would have been 60.8 percent," the company said.

H&M, the world's second-biggest clothing retailer behind Spanish group Inditex which owns the Zara chain, was however optimistic about the future.

"H&M remains positive towards the future expansion and the company's business opportunities," it said.

It said it planned to open 74 new stores in the second quarter, compared to 48 during the same quarter last year.

"Most of the stores are planned for Germany, France, the UK, Italy, Switzerland and Spain," it added.

At the same time it will close seven stores, up from four a year ago.

H&M has for several years pursued an aggressive global expansion and opened 13 new stores in the first quarter, up from 11 a year ago, and closed three.

"The openings of the first two stores in Moscow, Russia, were very successful with a great interest from customers and media. Sales for the first two stores surpassed the company's expectations," it said.

In total, H&M had 1,748 stores at the end of February, compared to 1,529 last year.

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