Heat wave and European financial crisis dent H&M profits in Q3

STOCKHOLM – Swedish fashion retailer Hennes and Mauritz announced Thursday plans to ramp up its expansion in the coming months, even though problems associated with Europe’s debt crisis and a heat wave in a number of its key markets capped earnings in the third quarter.

The Stockholm-headquartered group posted a net profit of 3.6 billion kronor ($549 million) in the three months between June and August, up just under 1 per cent from 3.59 billion kronor in the year-ago period. Revenues rose to 33.57 billion kronor from 31.51 billion kronor.

The group said its performance was dented by economic difficulties in many European countries, a late-summer heat wave in much of Europe as well as currency fluctuations. However, some relief was provided by cheaper cotton prices.

“Conditions for the fashion retail industry continued to be challenging in many markets in the third quarter — both as regards the weather and the macroeconomic climate, with austerity measures and restrained consumption,” CEO Karl-Johan Persson said, adding that lower than expected sales could “primarily” be blamed on the heat wave.

The company’s share price dropped almost 4 per cent to 236.70 kronor ($35.89) in early trading on the Stockholm stock exchange.

Even so, the group said it continues to grab market share and revealed plans to open 300 new stores this year, up from a previously forecast 275.

It also said it plans to launch a new fashion brand, & Other Stories, in the first half of next year, which will be located in separate stores. The clothes will focus more on quality and will be higher priced than its normal fashion lines.

Daniel Ovin, an analyst at CAI Cheuvreux Nordic in Stockholm, said H&M’s third quarter performance was a “disappointment,” especially with regard to the fall in the company’s gross margin to 58.2 per cent from 58.6 per cent.

“I would have thought that the lower cotton prices would have helped there,” he said.