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H&M stock dips on profits fall

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H&M stock dips on profits fall
11:28 CET+01:00
Swedish retailer Hennes & Mauritz on Thursday reported a fall in fourth quarter profits on the back of rising cotton prices and the weak euro.

Full year figures showed a climb of 14 percent in net profit however and the chain announced that it planned to open 250 new stores this year, after opening 218 in 2010.

From December 2009 to November 2010, the company posted a net profit of 18.7 billion kronor ($2.89 billion), up from 16.4 billion kronor a year earlier.

The profit was boosted by a 7.0 percent increase in sales during the year to a total to 108.5 billion krona.

"We are optimistic about the future and we plan to increase sales in comparable units in 2011," H&M CEO Karl-Johan Persson said, calling 2010, "a very good year."

But the company's fourth quarter earnings missed expectations, with a net profit falling 11 percent compared to the same period a year earlier, to 5.5 billion kronor. Analysts surveyed by Dow Jones newswires expected a net profit of 5.9 billion kronor.

The main figure was dragged down by the strength of the Swedish krona and a hike in raw material prices such as cotton.

"Raw material prices have increased; cotton prices for example almost doubled in 2010," Persson said.

"Naturally, H&M has to adapt to changing conditions but always in a way that is in accordance with our business concept ... and in that way increase opportunities for us to continue to increase market shares," he added.

For Societe Generale analyst Anne Critchlow, the group does not seem willing to pass higher costs for raw materials onto customers with clothing price hikes, which could have consequences for the company's finances.

"The problem of increasing prices for raw materials will not disappear in the next six or 12 months," she told Dow Jones newswires.

Sales for the September-November period were up 6.0 percent to 29.7 billion, while analysts expected an increase in sales of 8.0 percent.

The disappointing fourth quarter results sent H&M shares tumbling 6.03 percent to 214.90 kronor in late morning trading on the Stockholm stock exchange, which was down just 0.15 percent.

H&M was founded in Västerås in central Sweden in 1947. The cheap-and-chic

fashion company had 2,206 stores and 59,440 employees worldwide at the end of

2010.

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