Fewer discounts pay off for H&M
March 22, 2002 Posted: 5:31 AM EST
STOCKHOLM, Sweden (Reuters) - Fashion retailer Hennes & Mauritz AB beat expectations on Friday by more than doubling its first quarter pre-tax profits and said lower price reductions helped increase gross margins, boosting its share price.
The world's largest clothing retailer by market capitalisation said its pre-tax profit soared 107 percent to 1.18 billion crowns ($115.5 million) for the fiscal quarter ending February 28 against market expectations of 928 million.
"Planned lower stock in-trade compared with last year has resulted in considerably lower price reductions and thereby a substantially increased gross margin,'' the group said in its interim statement.
The results sent H&M shares soaring 8.5 percent to 205 crowns in electronic Instinet trade before the Stockholm bourse opening at 0830 GMT.
"This is really, really good,'' a Swedish analyst said. "Looking at the profit margin you can see that they have adapted their costs to the lower demand.''
The group, with 776 stores in 14 countries, said sales in February alone rose 16 percent from the same month a year ago, taking first-quarter sales 17 percent higher to 11.25 billion.
H&M's gross margin rose to 52.9 percent in the quarter, from 45.8 percent in the same quarter a year ago. Investors said ahead of the report that they would be focusing on gross margins for indications that the group's lower sales growth was offset by higher profitability, as promised by the company.
"This bodes well for the future. The first quarter is traditionally weak so we can expect better sales in the coming months,'' another analyst said.
H&M said it had opened seven new stores during the quarter and closed two and repeated that it planned to open 90 new stores in 2002. In 2001 H&M opened 93 stores.
In the second quarter of this year, H&M said it plans to open seven stores in Germany, six in France and two in Britain, Holland, Belgium, Austria and the United States. In Norway, Denmark and Finland it planned to open one store per country.
In the last month, the stock has been recovering from the all-time low of 172.5 crowns it hit on February 25, after the the company said that it would slow down the pace of its expansion in the important U.S. market, due to the then weaker economy.
