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Cheap fashion helps H and M to profit

Wednesday, June 20 10:44:42

Hennes and Mauritz, the world's second-biggest clothing retailer, beat quarterly profit forecasts, joining larger rival Inditex in showing austerity-hit shoppers are keen to cheer themselves up with cheap fashions.

The Swedish group also reported steady gross profit margins today, raising hopes that a long-standing drag from higher cotton prices is coming to an end.

"Many countries are still in a challenging macro-economic situation with austerity measures and restrained consumption," H and M said, as it hailed strong sales of spring and summer ranges including soft pastel dresses and Hawaiian-inspired resort wear.

"The fact that H and M continues to gain market share even in these challenging markets is a clear sign that H and M's strong offering is appreciated by customers worldwide."

Many European retailers are struggling as disposable incomes are squeezed by rising prices, muted wages growth and government cutbacks, while confidence is rattled by a sovereign debt crisis. H and M and Spain's Inditex have fared better than most thanks to a focus on low-priced fashions and broad geographic spreads that include faster-growing emerging markets.

Inditex, which runs the Zara chain, last week beat first-quarter profit forecasts.

H and M chief executive Karl-Johan Persson said spring and summer ranges including pleated skirts and smock tops had been snapped up "in all our 44 markets, in big cities as well as small cities - and in both countries with strong economic growth and countries with a tough macroeconomic climate".

Espirito Santo analysts hailed H and M's better-than-expected performance on both profit margins and operating costs, but said they continued to prefer Inditex.

The Spanish firm has outperformed its Swedish rival in recent quarters, helped by its broader range of brands and by the fact it sources a smaller proportion of goods from Asia, where labour costs have been rising. (C ) Reuters