H&M Q1 profit drops 30 pct on high cotton prices

AP News
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Posted: Mar 31, 2011 4:01 AM
H&M Q1 profit drops 30 pct on high cotton prices

Swedish fashion retailer Hennes & Mauritz AB said Thursday that its profit fell 30 percent in the first quarter of the year as a result of higher cotton prices and negative currency exchange effects.

The Stockholm-based company said net profit dropped to 2.62 billion kronor ($41.3 million) in the quarter, from 3.74 billion kronor in the same period a year ago.

Revenue in the December-February period fell 1 percent to 28.7 billion kronor, partly because of a strong Swedish krona. Sales in local currencies increased 9 percent.

The company's gross margin fell to 57.8 percent from 61.9 percent, missing analysts' expectations of 58.1 percent, as measured by a poll from SME Direkt.

Shares in H&M dropped 4 percent to 208 kronor ($32.80) in early Stockholm trading.

A more detailed look at the figures showed that the budget fashion chain experienced accelerating cost inflation, with significantly higher cotton prices, less spare capacity and increased transportation costs in the quarter.

"Instead of passing on these cost increases to customers, we chose to strengthen our price position in order to build further on our strong market position for the long term," H&M's CEO Karl-Johan Persson said.

The company continued to experience "a tough market," including restrained consumption and a discount driven market, it said. Also, bad weather hit sales as stores in several markets closed temporarily because of heavy snowstorms.

At the end of February, H&M had 2,212 stores, up from 1,992 a year earlier. The company opened its first two outlets in Bucharest, Romania, at the end of March and plans to open 97 new stores worldwide, while closing eight in the second quarter.

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Online: http://www.hm.com