Sweden's H&M reported stronger-than-expected sales growth in the third quarter on Monday as the world's second biggest fashion retailer said its efforts to compete with online sellers and budget brands were bearing fruit.

H&M, whose shares had climbed 8.8% by 0707 GMT, said its moves to face the shift in consumer tastes had contributed to gradually improved sales and increased share in many markets in the third quarter.

But the retailer, which has more than 4,700 stores, said the introduction of a new logistics system to speed up deliveries had hit sales and raised costs in important markets such as the United States, France, Italy and Belgium.

H&M's local-currency sales including value added tax (VAT) in the June-August period rose 4% from a year earlier, against a mean Reuters poll forecast for a 1.9% increase.

Reported sales excluding VAT were up 9% to 55.8 billion Swedish crowns, beating a forecast 5.5% rise to 54.0 billion crowns.

Biggest rival Inditex, the owner of Zara, last week reported 3% sales growth for the first half of its fiscal year to end-July, and forecast second-half like-for-like sales growth of 4-6% and improved profitability.

H&M has seen profits shrink and inventories pile up over the past couple of years as sales slowed at its core budget brand. It is due to publish its full fiscal third-quarter report on Sept. 27. (Reuters)

Source: www.businessworld.ie