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H&M Q1 Profit Edges Up But Costs Weigh; Shares Fall - Update

Swedish apparel retailer Hennes & Mauritz AB (HEN.L, HMRZF.PK, HNNMY.PK) on Thursday reported just under 5 percent growth in first-quarter profit despite sales increasing 13 percent, as the company's decision to not increase prices to offset higher purchasing costs squeezed its margins. The stock declined nearly 6 percent in morning trade at Stockholm.

Providing an update on current trading, the company said sales to date in March increased 22 percent. Chief Executive Officer Karl-Johan Persson said, "The new year has started well...The positive development has continued in March, with very strong sales. Our collections have been well received which has resulted in increased market share in a very challenging fashion retail market."

For the period spanning between December 1, 2011 and February 29, 2012, profit increased to 2.74 billion Swedish kronor ($0.41 billion) or 1.65 kronor per share from 2.62 billion kronor or 1.58 kronor per share in the prior year.

Sales, including value added tax or VAT, increased to 32.5 billion kronor from 28.71 billion kronor in the same quarter last year. Sales in comparable units grew 3 percent. Excluding VAT, sales rose to 27.83 billion kronor from 24.5 billion kronor.

Gross margin declined to 55.8 percent from 57.8 percent due to increased purchasing costs as a result of higher cotton prices as well as the company's decision not to raise its prices to customers. Increased markdowns also contributed to the drop in gross margin.

Persson added that the company would launch a completely new store chain next year. "The new chain of stores will be independent and complement the other offerings from the Group. We have great faith in this new brand and we see considerable potential for further initiatives."

The stock is currently falling 5.47 percent in Stockholm at 236.70 kronor on a volume of 3.77 million shares.

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by RTT Staff Writer

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