Feb. Sales Boost H&M's Pretax Profit

Swedish fashion company Hennes & Mauritz bucked a gloomy economic backdrop and boosted its shares with a near 20 percent jump in first-quarter profit, above forecasts and fired by strong February sales.

The world's third biggest clothing retailer by sales made a pretax profit of 4.06 billion Swedish crowns ($680 million), offering scant evidence that consumer spending on new outfits had been crimped by the global credit crunch.

Profit topped the mean forecast of 3.90 billion in a Reuters poll and the 3.41 billion in the same period the previous year.

The trendy-but-cheap apparel firm said sales in February, the final month of its first quarter, were up 24 percent overall against an expected 17 percent, with turnover in stores open a year or more up 10 percent.

Analysts had expected February like-for-like sales to have risen 3.9 percent, according to the mean forecast.

Profit was boosted by a falling dollar, growing Internet and catalogue sales, an extra trading day due to the leap year and well-received collections, the firm said.

"Admittedly, the dollar buying gains are likely to be running out and comparatives do get tougher in the second quarter, however we believe that the high earnings growth is still achievable going forward for H&M," Barclays Capital said in a note.

Oppenheim Research said H&M trades at a premium of 10 percent over rival Inditex but was a better choice due to being more able to withstand an economic downturn.

"H&M currently trades close to its 10-year low in forward multiples, which we consider highly attractive," Oppenheim said.

Shares in H&M, Sweden's biggest company by value, closed 7.8 percent higher at 364.50 crowns, topping the wider Stockholm and DJ European retail indices.

Slow Down?

Falling real estate values and worries of a global slowdown have hit consumer confidence in H&M's main markets. British clothing retailer Next warned earlier this month that trading would be tough this year with like-for-like sales seen down 4-7 percent. Next year may not be better, it added.

But the effects on H&M, which counts Germany, Britain and Sweden as its biggest markets, have been limited.

"What is strong is that the last month ... was so much better than expected. So those who were looking for a slowdown in the sales development will have to look somewhere else," said an analyst who asked not to be identified.

H&M said sales in the quarter increased 18 percent in crowns to 19.7 billion versus a mean forecast of 19.3 billion. Its gross margin rose 0.7 points to 59.6 percent.

Earlier this month, Sweden's largest firm by market value broke with its long-held strategy of organic growth, picking up a 60 percent stake in Fabric Scandinavien, maker of a popular jeans brand, for 564 million crowns.

Chief Executive Rolf Eriksen held the door open for more such buys.

"If something comes up, we have capital," Eriksen said. "But is important that it fits in with our expansion strategy and H&M's core business."

Fabric Scandinavien operates six Weekday and 12 Monki stores in Sweden but is at the start of an overseas expansion.

In the second quarter the firm said it planned to open 54 new H&M stores and close four. It will open its first store in Japan in the autumn, is growing in the Middle East and will open in Russia in 2009.

It had 1,529 stores at the quarter's close versus 1,351 a year earlier.