Reuters: Hot Stocks: UPDATE 3-H&M says June sales rise after chilly second quarter

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UPDATE 3-H&M says June sales rise after chilly second quarter Jun 19th 2013, 14:56 Wed Jun 19, 2013 10:56am EDT * March-May pretax 6.1 bln SEK vs consensus 6.3 bln * Says June 1-17 local currency sales +14 pct * Inventories higher than planned at end-Q2 * Says situation challenging in many big markets * Shares up 1.2 pct, extend bounce from 6-month low (Rewrites first paragraph, adds CEO comment, online plans) By Anna Ringstrom and Veronica Ek STOCKHOLM, June 19 (Reuters) - H&M, the world's second-largest fashion retailer, posted a sharp rise in sales since the start of June, driven by strong demand for full-price items from its new collections more than discounted older unsold items. The June performance helped offset a greater-than-expected drop in quarterly earnings at H&M, which like other fashion companies has been squeezed by weak consumer demand in its main European markets and chilly spring weather. The Swedish company, whose biggest global rival is Zara-owner Inditex, said sales rose 14 percent in local currency terms in the first 17 days of June compared with the same period a year ago, helped by its summer range featuring imitation leather biker jackets and chiffon blouses. Chief Executive Karl-Johan Persson said that although H&M had entered its third quarter with higher inventories than planned, June promotions had not started earlier than last year. He said appetite for marked-down clothes was good but, more notably, new collections were selling better than expected. "What's great to see is that it's primarily full-price, the new collections, that sells well," Persson told Reuters on Wednesday. "That's where we over-achieve. There may of course be pent-up demand from a cold spring, who knows. But it feels good." H&M's shares rose 1.2 percent to 227.5 crowns by midday, extending a recovery since hitting a six-month low of 219 crowns last week. "(Q2) is slightly weaker than expected," DNB analyst Haakon Aschehoug said, adding: "June sales to date are actually looking a little bit better than expected, so it's a good start to Q3." Still, the group warned that the situation remained challenging in many of its major markets after second-quarter earnings were hit by still-sluggish consumer morale and bad weather in its main European market. Pretax profit in March through May fell to 6.1 billion crowns ($947 million) from a year-earlier 7.05 billion, compared with a mean forecast of 6.3 billion in a Reuters poll of analysts. NEGATIVE EFFECT H&M, which last saw quarterly earnings fall in the fourth quarter, said profits were also negatively affected again by large long-term investments and currency translation effects. With unusually chilly weather in March and April in Europe leaving spring collections on the racks, H&M said markdowns dragged its gross margin in the quarter to 61.1 percent from 61.7 percent a year earlier, in line with expectations. H&M had previously said quarterly sales stood at 31.6 billion crowns, roughly unchanged from a year ago. Inditex has weathered the European downturn better than H&M, helped by faster emerging-market growth, but last week posted a weak quarterly profit growth due to the cold weather and gloom in its home market Spain. Online retailers including Zalando and ASOS are also starting to give chains such as H&M a run for their money, with steep sales growth, albeit from relatively low levels. H&M, which has rolled out Web stores at a relatively slow pace, plans to launch online in the United States in August after several delays. Persson said H&M beginning in 2014 would speed up its online expansion and launch Web stores in several countries each year. "It is exciting countries that we are looking at, large markets when it comes to retail and online trade," he told Reuters. "It's a considerably faster expansion pace when it comes to web stores than we have had historically," he said, adding H&M was looking not only at Europe but also countries such as China, where Inditex launched last year. Barclays analyst Christodoulos Chaviaras said the online expansion was positive. "The (Q2) report is a small miss, but it actually gives hope to the long term investors given that now they become serious about their online proposition," he said. H&M shares, which are unchanged from a year ago while Inditex is up 28 percent, trade at 21.2 times forecast 2013 earnings, below Inditex' 23.4 times multiple, according to Thomson Reuters data. ($1 = 6.4748 Swedish crowns) (Editing by David Holmes) Link this Share this Digg this Email Reprints

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