* March local currency sales +6 pct vs preliminary +7 pct
* Targets 10-15 pct annual sales growth
* Increasing competition from budget rivals and online
* Shares down 0.3 pct
(Adds background, analyst comment, shares)
By Anna Ringstrom and Rebecka Roos
STOCKHOLM, April 18 March sales growth at Hennes
& Mauritz (H&M) fell short of a preliminary estimate,
the Swedish budget fashion group said on Tuesday, in another
sign it may struggle to reach a new full-year target.
For decades a fast-growing success story, H&M repeatedly
missed sales forecasts last year and saw profits fall amid stiff
competition from budget rivals such as Britain's Primark
and new players online.
The world's second-biggest fashion retailer after Zara owner
Inditex said local currency sales in March - the first
month of its fiscal second quarter - rose 6 percent, one
percentage point below a reading for the first 28 days of the
"It's not a sensation but yet another confirmation it is a
tough market," said Carnegie analyst Niklas Ekman.
Societe Generale analyst Anne Critchlow said the final
reading was a fresh blow after disappointing preliminary data.
In February, H&M saw local currency sales shrink for the
first time in four years.
Chief Executive Karl-Johan Persson said in March weaker than
expected sales in the first quarter made it harder to meet a
full-year growth target of 10-15 percent.
Carnegie's Ekman, who has a "sell" recommendation on H&M's
shares, was surprised the company continued to open so many
stores in a weak clothing market.
"The first thing they should do is slow down expansion," he
said. "Things are looking pretty tough for H&M."
H&M replaced its old growth target which focused on store
openings to reflect the shift towards growing e-commerce, but is
still opening many shops. At the end of March, it had 4,426
stores, up 11 percent from a year earlier.
In April, the timing of Easter should support sales, though
chilly weather across key northern and western European markets
such as Germany may limit demand for spring wear.
"In our view the greatest challenge facing the group is that
the main H&M concept operates in the 'value fashion' arena,
which is the most price competitive and crowded part of the
clothing market," said Societe Generale's Critchlow, who also
has a "sell" recommendation on H&M's shares.
H&M is branching out into brands with higher prices than its
core H&M chain, but these still account for a small share of
Sourcing the bulk of clothes in Asia with long lead times,
it is also investing to make its supply chain more flexible and
responsive to swings in demand. A more nimble supply chain has
long helped Inditex outperform H&M.
H&M shares were down 0.3 percent at 0815 GMT, and have
fallen around 26 percent over the past year.
(Reporting by Anna Ringstrom and Rebecka Roos; Editing by Terje
Solsvik and Mark Potter)