Year to Date Better Than Expected for H & M

Clothing giant Hennes & Mauritz (H & M) reports a profit before tax of 4.85 billion Swedish kronor for the period June-August, the third quarter in the company’s broken business year.

The profit is better than expected by analysts. Analysts had on average expected a profit of 4.66 billion SEK, according to Reuters compilation of forecasts. Noone expected anywhere near the result of the same period last year, where H&M made a profit before tax of 5.735 billion SEK.

H & M’s sales during the quarter amounted to 26.912 billion kronor, compared to 26.893 billion kronor a year earlier.

Sales in the third quarter rose 5 percent, measured in local currencies and compared to the same month last year. Same store sales declined by 3 percent.

Gross margin in the third quarter to 58.6 percent, compared with 60.5 percent for the same periods of 2010.

In light of the strong comparatives from last year and the unfavorable weather in several markets, H & M said the sales during the quarter was “satisfactory”.

Gross margin was affected negatively by “unfavorable external factors,” according to the company.

“These factors consisted mainly of a cost-push inflation in the supply chain, including high cotton prices,” the H & M.

Price reductions were the same as in the corresponding period last year, according to the interim report.

Even in the third quarter, the Swedish krona a negative impact on reported earnings, says H & M.

Inventories increased by 26 percent during the quarter, which is explained by H & M’s expansion and higher purchasing costs but also by the fact that sales did not increase as much as planned.

“The higher inventory levels, combined with the September sales negatively impacted by the unusually warm weather means that sales in October and November will determine the price reduction level for the fourth quarter,” writes H & M.

The interim report impressed the market. H & M shares rose sharply when the Stockholm stock exchange opened today, after the clothing giant’s interim report. Initially there was a price lift of 3.5 per cent to SEK 202:50.

– The fourth quarter will be very intense opening, with about two new stores a day, said H & M boss Stefan Persson as he presented the interim report at a press conference.

Much of the expansion takes place in Asia. H & M recently opened its first store in Singapore.

“We had a great start there, far above our expectations,” the company said.

Next year, H&M plans through franchises, to move into Indonesia and Thailand.

“We see great potential in Southeast Asia,” Stefan Persson said.

During June-August, the third quarter of the H & M’s financial year, the situation became more challenging than before, according to Karl-Johan Persson. He also points to the strong comparatives from last year and the unusually warm weather in much of Europe, which has hampered sales of autumn and winter garments.

Sales were strong particularly in the U.S., Britain and China. And H & M in the quarter gained market share from competitors, according to Persson.

“We see it as confirmation that our work with the customer offering is paying off,” Persson said.

Hennes & Mauritz
Turnover 26 912 26 893
Operating profit 4707 5656
Profit before taxes 4850 5735
Profit after tax 3589 4244
Earnings per share SEK 2:17 2:56 SEK
Figures in millions unless otherwise stated.


About Gregers Møller

Editor-in-Chief • ScandAsia Publishing Co., Ltd. • Bangkok, Thailand

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