UPDATE 2-H&M October sales lag, blames recession

STOCKHOLM, Nov 16 (Reuters) - Swedish fashion retailer Hennes & Mauritz posted an unexpected 3 percent drop at established stores in October, blaming weak sales in some of its major markets on the global downturn and knocking its shares. The company said on Monday total sales were up 7 percent and both numbers were well below the average forecast in a Reuters poll. The company said in a statement that the continued recession had affected sales differently across its markets. "Sales in Scandinavia, Central Europe and Asia were very satisfactory while most other markets, primarily France, Spain and the U.S., had a continued weak sales development," the company said in a statement. Europe's clothing retailers have mostly had a tough time in the economic downturn, and while there are signs the recession is over in some countries, there are fears that consumers will hold back from discretionary spending to rebuild savings. Data showed last week that U.S. consumer sentiment had soured in early November on grim job prospects while a larger-than-expected trade deficit had analysts scaling back estimates for third-quarter U.S. growth. H&M has hoped to lure reluctant shoppers with a new line by designer Jimmy Choo. Several of its stores sold out of the crystal-studded clothing and accessories after its launch over the weekend. "I still think that consumers are holding back spending, but I think that we will see some better performance going forward due to easier comparables, and also due to less price pressure among competitors," said Soren Lontoft Hansen, analyst Sydbank. Analysts had expected a 5.1 percent rise in sales in established stores and a 14.9 percent rise in total sales. Analysts said the October result was disappointing considering the colder weather and following weak numbers in August and September which had been blamed on warm weather. Rising unemployment could also have weighed on sales. "Probably one explanation for the weak figures is the youth unemployment," Stefan Billing, an analyst at HQ Bank. "When the financial crisis hit with full force last autumn young people continued to spend, but today jobless figures are at record high levels and that is probably what we are seeing in the numbers." The strong forecast was based also in part on figures published by retail associations in Germany -- H&M's biggest market -- and Sweden, the third largest. In Germany, H&M's largest market, apparel sales jumped 12 percent in the month, according to industry journal Textilwirtschaft. In Sweden, the HUI/Stil index for clothing sales was up 6.4 percent. German's Economy Minister said last week economic data was improving but warned that the jobs market may turn gloomier in the winter. H&M does not release absolute sales figures, only the percentage change in local currencies. While sales have disappointed for several months in a row, H&M still posted a slightly bigger than expected third-quarter pretax profit in September and recent figures from other European retailers show that some peers are weathering the downturn. On Monday, online UK fashion retailer ASOS, which targets internet-savvy youngsters, posted a rise in first-half profit and said sales remained strong in its second half. Last week, Italian clothing retailer Benetton Group SpA turned in a higher third-quarter net profit while Inditex, H&M's top rival, and Next both defied the downturn to report in September better-than-expected first-half profits. (Reporting by Veronica Ek; Editing by Mike Nesbit) Keywords: H&M SALES/ (Stockholm Newsroom, tel: [phone], e-mail: [e-mail]) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved.

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