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H&M Second-Quarter Profit and May Sales Miss Market Expectations

Swedish fashion giant Hennes & Mauritz second-quarter profits and May sales fell short of expectations on Wednesday, despite high-profile campaigns featuring pop icons Madonna and Kylie Minogue.

H&M reported pretax profit of 5.1 billion Swedish crowns ($726.9 million) in the second quarter ended in May, against analysts' average forecast of 5.3 billion in a Reuters poll and 3.9 billion in the same quarter last year.

The firm's gross margin was 61.6% against 62% seen in the poll and 59.6% in the year-earlier quarter.

The rise in gross margin was due to "a more efficient buying process, a lower proportion of price reductions and a favourable dollar exchange rate", the company said in a statement.

The firm, which counts Germany, Britain and Sweden as its biggest markets, has had a busy start to the year, opening its first store in Asia, speeding up its expansion and launching its higher-priced Collection of Style chain.

The "M by Madonna" range, designed by the singer, went on sale in March, while soap actress-turned-singer Kylie Minogue is fronting H&M's swimwear campaign.

Strong sales in the first two months of the quarter and the celebrity campaigns pushed up analysts' expectations for May sales to a 14% gain.

However, sales in the month only rose 10% year-on-year.

Like-for-like sales were down 2% in May versus an expected rise of 1.9%.

The firm did not offer any comment on May sales.

Continuing its theme of collaborating with top fashion names, H&M said it had signed up Italian Roberto Cavalli as guest designer.

His collection of menswear, women's wear and lingerie will be available in around 200 stores worldwide from November 2007.

H&M said it planned to open 95 more stores in the remainder of its financial year, mainly in the United States, France, Spain, Germany, the UK and Italy.

It had 1,420 stores open at the end of May.

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