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UPDATE 1-H&M March sales weaker than initial estimate amid tough competition
April 18, 2017 / 8:23 AM / in 7 months

UPDATE 1-H&M March sales weaker than initial estimate amid tough competition

* 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 (Reuters) - 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 month.

“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 turnover.

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)

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