By Nicholas Vinocur and Veronica Ek
STOCKHOLM, Jan 28 (Reuters) - Swedish clothing retailer Hennes & Mauritz stoked hopes for a turnaround in 2010 with a sharp rise in December and January sales, and beat forecasts for fourth-quarter profit, helped by store expansion.
H&M shares were up 7.5 percent at 432 crowns at 0953 GMT.
The company, which faces stiff competition from global rivals such as GAP and Inditex, has weathered the economic downturn better than many rivals thanks to its geographic spread and low-price profile.
After undershooting sales forecasts for the last three months of its fiscal year, which runs to end-November, H&M turned a corner in December with a 3 percent rise in same-store sales, versus a 1.1 percent fall seen in a Reuters poll.
That was the first positive result for same-store sales since April 2009, and the strong momentum appeared to carry over to January when total sales increased by 13 percent compared to the same period last year.
'I would call it a very solid report, profit-wise,' said Soren Lontoft Hansen, an analyst at Sydbank.
H&M also outperformed with a fourth-quarter gross margin of 66.3 percent versus 62.8 percent seen in a Reuters poll. But it it signalled that a campaign of sharp markdowns in early 2010 would weigh on margins in the first quarter of this year compared to the same period last year.
'It's a stellar gross margin, but you have to wonder whether it's sustainable over the medium term with the likes of (British discount clothing chain) Primark expanding into Germany,' said Luca Sola, an analyst with Bernstein in London.
H&M, which has pioneered a strategy of offering high-profile brand names like Jimmy Choo and Sonia Rykiel at knock-down prices, posted fourth-quarter pretax profit of 7.99 billion Swedish crowns ($1.10 billion), beating an expected 6.97 billion crowns in a Reuters poll of 25 analysts.
The full-year result compared favourably with global rivals such as European giant Inditex, which posted a 9 percent rise in sales between August and December 2009, and third quarter results from U.S. retailer Gap.
Inditex's shares were up 3.7 percent at 0953, signalling a general rise in confidence in the sector following H&M's figures. The DJ retail index was up 1.6 percent at the same time.
MARKDOWNS
But H&M may face its toughest competition further down the price chain, with British discount retailer Primark and online clothing store Asos both posting double-digit rises in sales during the crucial Christmas shopping period.
'Whereas UK retailers saw a good cyclical recovery coming through last year, perhaps the European retailers have been lagging that a bit,' Anne Critchlow, analyst at SG Securities, said. 'But perhaps finally it's come through for them.'
'It's hard to strip out the effect of markdowns and how that might have boosted sales, but on the face of it, it looks like a bit of turnaround (for H&M),' she added.
H&M is betting on store expansion and a campaign of markdowns in its first fiscal quarter to counteract the lingering effects of the global economic downturn.
The group, which recently opened its first store in China, said it plans to open around 240 outlets in 2010.
Despite signs that consumers' mood is starting to improve, euro zone retail sales still fell more than expected in November. Monthly figures for the euro zone for December are expected later on Thursday.
(Additional reporting by Mark Potter in London; Editing by Rupert Winchester)
($1 = 7.289 Swedish crowns) Keywords: H&M/ (Stockholm Newsroom, tel: +46-8-700 1017, e-mail: stockholm.newsroom@reuters.com) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
STOCKHOLM, Jan 28 (Reuters) - Swedish clothing retailer Hennes & Mauritz stoked hopes for a turnaround in 2010 with a sharp rise in December and January sales, and beat forecasts for fourth-quarter profit, helped by store expansion.
H&M shares were up 7.5 percent at 432 crowns at 0953 GMT.
The company, which faces stiff competition from global rivals such as GAP and Inditex, has weathered the economic downturn better than many rivals thanks to its geographic spread and low-price profile.
After undershooting sales forecasts for the last three months of its fiscal year, which runs to end-November, H&M turned a corner in December with a 3 percent rise in same-store sales, versus a 1.1 percent fall seen in a Reuters poll.
That was the first positive result for same-store sales since April 2009, and the strong momentum appeared to carry over to January when total sales increased by 13 percent compared to the same period last year.
'I would call it a very solid report, profit-wise,' said Soren Lontoft Hansen, an analyst at Sydbank.
H&M also outperformed with a fourth-quarter gross margin of 66.3 percent versus 62.8 percent seen in a Reuters poll. But it it signalled that a campaign of sharp markdowns in early 2010 would weigh on margins in the first quarter of this year compared to the same period last year.
'It's a stellar gross margin, but you have to wonder whether it's sustainable over the medium term with the likes of (British discount clothing chain) Primark expanding into Germany,' said Luca Sola, an analyst with Bernstein in London.
H&M, which has pioneered a strategy of offering high-profile brand names like Jimmy Choo and Sonia Rykiel at knock-down prices, posted fourth-quarter pretax profit of 7.99 billion Swedish crowns ($1.10 billion), beating an expected 6.97 billion crowns in a Reuters poll of 25 analysts.
The full-year result compared favourably with global rivals such as European giant Inditex, which posted a 9 percent rise in sales between August and December 2009, and third quarter results from U.S. retailer Gap.
Inditex's shares were up 3.7 percent at 0953, signalling a general rise in confidence in the sector following H&M's figures. The DJ retail index was up 1.6 percent at the same time.
MARKDOWNS
But H&M may face its toughest competition further down the price chain, with British discount retailer Primark and online clothing store Asos both posting double-digit rises in sales during the crucial Christmas shopping period.
'Whereas UK retailers saw a good cyclical recovery coming through last year, perhaps the European retailers have been lagging that a bit,' Anne Critchlow, analyst at SG Securities, said. 'But perhaps finally it's come through for them.'
'It's hard to strip out the effect of markdowns and how that might have boosted sales, but on the face of it, it looks like a bit of turnaround (for H&M),' she added.
H&M is betting on store expansion and a campaign of markdowns in its first fiscal quarter to counteract the lingering effects of the global economic downturn.
The group, which recently opened its first store in China, said it plans to open around 240 outlets in 2010.
Despite signs that consumers' mood is starting to improve, euro zone retail sales still fell more than expected in November. Monthly figures for the euro zone for December are expected later on Thursday.
(Additional reporting by Mark Potter in London; Editing by Rupert Winchester)
($1 = 7.289 Swedish crowns) Keywords: H&M/ (Stockholm Newsroom, tel: +46-8-700 1017, e-mail: stockholm.newsroom@reuters.com) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
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