H&M First-Quarter Profit Rises Less Than Analysts Estimated

STOCKHOLM, Sweden — Hennes & Mauritz AB, Europe's second-biggest clothing retailer, reported first-quarter profit that rose less than analysts anticipated as the company invested in selling clothing online.

Net income rose 7.8 percent to 2.65 billion kronor ($410 million) for the three months ended Feb. 28, the Stockholm-based company said in a statement today. The average of eight analyst estimates compiled by Bloomberg was 2.89 billion kronor. The gross margin narrowed to 54.9 percent from 55.2 percent a year earlier

Sales at constant rates of exchange have advanced 12 percent so far this month. H&M, which sells jersey jumpsuits for $39.95 and leather sandalettes for $69.95, is investing in new brands and markets as it tries to close the gap with bigger Zara-owner Inditex SA. The Swedish retailer last year introduced accessories-focused chain & Other Stories, added its first store in the Southern hemisphere and started a U.S. Web-shop after several delays.

First-quarter sales, excluding value-added taxes, amounted to 32.1 billion kronor, H&M reported March 17. The retailer, which also operates brands including COS and Monki, has said it plans to add 375 stores in total this financial year. Openings in countries like Australia and India are scheduled for this year, H&M has said.

H&M is fighting increased competition from online retailers such as Asos Plc and budget retailers including Primark. The latter, a unit of Associated British Foods Plc, is expanding across Europe and increased selling space by about 8 percent in its first quarter.

“H&M is undercut on price by Primark, while Inditex with Zara has a little higher fashion content,” said Haakon Aschehoug, an analyst at DNB ASA, prior to today’s release. H&M is “not the best at fashion, they’re not the best at price, they’re neither fish nor fowl.”

Inditex last week reported its slowest earnings growth in five years as it made investments in new retail space and distribution. The company encouraged investors with accelerating revenue growth in the first six weeks of the fiscal year.

Inditex, which gets about two-thirds of sales from its Zara concept, has almost twice as many stores as H&M. While H&M’s namesake brand makes up more than 90 percent of its store count, only about a third of Inditex total stores are Zara shops. H&M doesn’t break out sales per concept.

H&M shares have dropped 2.1 percent this year, compared with a 7.9 percent decline for Inditex.

By: Katarina Gustafsson