H&M Profit Tops Estimates as Retailer Extends Offering

STOCKHOLM, Sweden — Hennes & Mauritz AB, Europe's No. 2 clothing retailer, reported first-quarter profit that beat analysts' estimates as the company extended its offering of sportswear, shoes and beauty products.

Net income rose 36 percent to 3.61 billion kronor ($423 million) in the three months ended Feb. 28, the Stockholm-based company said in a statement Tuesday. The average of 16 analyst estimates compiled by Bloomberg was for 3.32 billion kronor. H&M also said sales in the first three weeks of March rose 9 percent in local currency terms.

"We have made a very good start to 2015," Chief Executive Officer Karl-Johan Persson said in the statement. "Our attractive customer offering and strong expansion both through stores and online, as well as our work on continuous improvement, are among the reasons for increased market share gains and good profits."

The gross margin expanded to 55.2 percent from 54.9 percent a year earlier, H&M said.

First-quarter sales, excluding taxes, advanced 25 percent to 40.3 billion kronor, H&M said March 16.

The retailer, which in addition to its namesake brand also owns labels such as COS and Monki, has flagged that the strength of the U.S. dollar will add to purchasing costs this year. The greenback has increased 27 percent against the euro and 33 percent against H&M's reporting currency, the Swedish krona, in the past 12 months. Movement in the dollar-euro rate is the single biggest source of transaction exposure for H&M.

With 80 percent of the company’s products being sourced from Asia, the majority of them dollar-denominated, H&M is “facing the most significant headwind to gross margin in more than a decade,” Simon Bowler, an analyst at Exane BNP Paribas, said in a note prior to the release.

By Katarina Gustafsson; editors: Matthew Boyle, Paul Jarvis, Thomas Mulier.