* Pretax profit 4.90 bln SEK vs consensus 5.37 bln
* Gross margin 58.2 pct vs forecast 59.1 pct
* Shares down 5.2 pct
* Postpones U.S. online launch, confirms new store concept
By Veronica Ek and Rebecka Roos
STOCKHOLM, Sept 27 The world's second-biggest
clothing retailer Hennes & Mauritz missed profit
forecasts on Thursday, as grim economic conditions and a
heatwave kept shoppers away and expensive currency transactions
hit margins in the third quarter.
H&M said it would postpone the launch of online services in
the United States, the world's largest online market, until
mid-2013. The group had previously planned the launch for this
autumn. But it said it would press on with plans for a
higher-priced alternative range in its shops.
Pretax earnings were 4.90 billion crowns ($740 million) in
H&M's third quarter, which runs from June to August, compared
with a year-ago 4.85 billion crowns and a mean forecast for 5.37
billion in a Reuters poll of analysts.
The group continued to gain market share, but gross margin
fell to 58.2 percent, below the same quarter last year and shy
of analysts' forecasts.
In Europe, where H&M has the largest part of its business,
many retailers are struggling as consumers curb spending faced
with rising unemployment and cuts in government support. This
year unusually hot August weather made them even less inclined
to spend on new lines of autumn wear.
For H&M those difficulties were exacerbated by expansion
costs - it plans to open 300 new stores this year - and
complicated currency swings. It makes most of its purchases in
relatively strong U.S. dollars, sells mainly in weak euros, and
then has to translate it all back into the Swedish crown, which
has surged this year.
"We all knew that the strengthened dollar was bad for the
sourcing in Asia and that inflation in Asia is bad for H&M's
gross margin, but this hit harder than I expected," said Sydbank
analyst Nicolaj Jeppesen.
Espirito Santo Investment Bank analyst Caroline Gulliver
said: "The gross margin benefits H&M has achieved through the
past decade, from shifting sourcing to lower cost countries,
have now come to an end."
Total sales in the Sept. 1-25 period, the beginning of the
group's fiscal fourth quarter, rose by 14 percent in local
H&M shares, which have gained some 7 percent this year, were
down 5.2 percent at 0851 GMT, underperforming a 1.2 percent fall
on the STOXX Europe 600 retail index.
NEW BRAND LAUNCH
However the retailer confirmed it would press ahead with the
launch of a new concept, called "& Other stories", a higher
priced range which targets women and will sell a broad selection
of clothes, shoes and accessories.
The project is seen an effort to keep up with its largest
rival Spain's Inditex, which runs the Zara chain and
last week beat first-half profit forecasts.
Inditex has more than twice the number of stores and has been
successful at operating several different store concepts.
While many retailers have felt the pinch from the global
economic downturn, H&M and Inditex have up to now fared better
than most thanks to their focus on cheap fashion and a broad
geographic presence that includes faster-growing emerging
markets. H&M has more than 2,600 stores across 44 markets.
"Conditions in the fashion retail industry continued to be
challenging in many markets - both as regards the weather and
the macro-economic climate," H&M's CEO Karl-Johan Persson said,
but added: "We see significant opportunities for continued
growth both in stores and online."
Espirito Santo's Gulliver said: "H&M is still a good growth
company, and on a normalised currency basis we expect
sustainable profit growth of 11-12 percent driven by new store