• Net profit fell 10.2% to SEK2.4bn (US$370m)
• Sales rose 2% to SEK28.4bn
• Gross margin fell to 55.2% from 55.8%

Clothing retailer H&M Hennes & Mauritz has seen first quarter net profit fall after a late spring hurt sales and profits were impacted by long-term investments.

The company recorded a 10.2% decline in net profit to SEK2.4bn (US$370m) over the quarter ended 28 February, against a SEK2.7bn profit in the same period of the prior year.

Sales growth did not reach expectations, rising 6% in local currencies, and up 2% in SEK to SEK28.4bn.

Gross margin fell to 55.2% from 55.8% in the prior year period, which the company attributed to increased markdowns over the quarter.

"The first quarter has been characterised by the continued challenging situation for the fashion retail industry in many of our markets mainly due to a continued tough macro-economic climate, but also due to unfavourable weather during parts of the quarter," said CEO Karl Johan Persson.

"This meant that sales in the first quarter did not reach our expectations. The reported sales increase in SEK has been affected by substantial negative currency translation and calendar effects of almost SEK2bn - adjusted for these negative effects the sales increase was 8%".

Persson said the group's new fashion brand & Other Stories has been "tremendously received at its launch this March" and that sales have "far exceeded our high expectations". The strong launch means the retailer now sees the possibility to expand the concept faster and more widely than originally planned.

As far as its overall expansion is concerned, the company plans to ramp up the rate to around 350 new stores from an originally-planned 325, across a mix of its brands but mostly H&M. It will enter five new countries in 2013 and is also preparing to open in other countries in 2014, such as in Australia.

The retailer is set to launch an extended sports concept at the beginning of 2014. "The range will be significantly broader than today and will consist of sportswear and accessories in specially developed functional materials suited to various kinds of sporting activities," added Persson.

However, Bank of America Merrill Lynch analyst Richard Chamberlain questioned whether the accelerated space expansion strategy is the right one, "given the pressure on like-for-like sales, the recent strong growth of online retail and the experience of other companies like Gap which have suffered from worse in-store execution in the past following a ramp up in space".