H&M Profit Rises at Weakest Pace in Two Years on Garment Costs

GENEVA, Switzerland — Hennes & Mauritz AB, Europe's second-biggest clothing retailer, reported its weakest quarterly profit growth in two years as the strength of the dollar raised garment costs.

Net income rose 0.2 percent to 5.31 billion kronor ($630 million) in the three months through August, Stockholm-based H&M said in a statement Thursday. Analysts expected 5.37 billion kronor, according to a survey of estimates compiled by Bloomberg.

"Profits have developed well during the first nine months of the year, although profits in the third quarter were negatively affected by increased purchasing costs," Chief Executive Officer Karl-Johan Persson said in the statement.

H&M warned in June that the rising dollar would have a “very negative” effect on garment costs in the second half. The currency was on average 24 percent higher against the krona during the quarter. H&M gets about 80 percent of its products from Asia, where clothes are often priced in dollars. The greenback’s strength has hurt other apparel retailers like Associated British Foods Plc’s Primark.

H&M’s gross margin narrowed to 55.9 percent in the three months through August from 58.3 percent a year ago, meeting analyst estimates. That’s the weakest third-quarter gross margin in 11 years.

The Swedish retailer, which sells $9.99 rib-knit sweaters and ladies' tops starting at $4.99, is investing in e-commerce and expanding chains such as & Other Stories and COS as it tries to close the gap with larger Spanish rival Inditex SA.

Sales rose 19 percent to 46 billion kronor, the retailer said earlier this month.

Inditex last week reported an improvement in its gross margin for the first half, which ran through July, plus an acceleration in sales. The Spanish retailer depends less on dollar-denominated Asian purchases as it has the bulk of its garments produced near southern Europe.

By Thomas Mulier; editor: Matthew Boyle.