• Q3 profit up 3.9% to SEK3.46bn
  • Sales rose by 13%
  • Plans more new stores, UK online sales

Swedish fashion retailer H&M Hennes & Mauritz AB has posted a better-than-expected rise in third-quarter net profit, but warned recent sales have been disappointing as shoppers curbed their spending and sought discounts.

That said, H&M said it plans to open even more stores this year than earlier forecast, and is joining the battle for online customers with a UK website due to open for business in autumn 2010.

The world's third-largest fashion chain by sales after Gap Inc and Zara operator Inditex, said group profit after tax climbed 3.9% to SEK3.46bn (US$506m), up from SEK3.33bn a year earlier.

Sales excluding VAT rose by 13% to SEK23.55bn in the three months to 31 August, compared with SEK20.87bn last time.

In local currencies, sales increased by 3% and decreased by 6% in comparable units.

The retailer said weak sales in markets such as Spain, the US and France were offset by better performance in Sweden, Norway and Germany as well as new markets like China, Japan and Russia.

More recent sales, however, have been less encouraging, with same-store sales falling 11% in August from the same month last year.

The retailer blamed the slowdown on "restrained consumption, tough price competition and unusually warm weather in many parts of Europe at the end of the quarter."

It added: "During the recession customers have become more attracted to markdowns. H&M's summer sale sold out quickly resulting in fewer markdown items left for H&M in August compared to the market in general."

The company also said it was too cautious when planning its purchasing volumes of summer garments, which meant it didn't have enough key items.

Even so, H&M managed to lift its quarterly gross margin to 61.6% from 60.8% a year ago, as currency hedges helped offset in-store price promotions.

It also said the effect of a stronger US-dollar on purchase prices was eased by greater spare capacity at suppliers, lower transportation costs, and efficiencies in the purchasing process.

Looking ahead, its expansion target for the year has been raised from 225 to 240 stores, including 18 Monki and Weekday stores and 9 COS stores - most of which will be in the US, France, Germany, the UK and Italy.

But the retailer, which has 1,840 stores in total, has postponed next year's planned franchise opening in Jordan until 2011.

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