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By
Reuters
Published
Jan 22, 2009
Reading time
3 minutes
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H&M Q4 seen strong, outlook good despite retail gloom

By
Reuters
Published
Jan 22, 2009

* Hennes & Mauritz Q4 results due at 0700 GMT on Jan. 29

* Seen increasing profit despite tough market

* Analysts see pretax profit at 6.8 bln crowns, up 9 pct

By Veronica Ek

STOCKHOLM, Jan 22 (Reuters) - Swedish fashion giant H&M (HMb.ST) is seen posting a rise in fourth-quarter earnings next week despite dire conditions in almost all its markets.


H&M printemps-été 2009

The recent downturn in consumer spending has put pressure on retailers, but H&M and Spain-based rival Inditex (ITX.MC) have managed better than some rivals thanks to their focus on price-conscious fashion.

Analysts on average see H&M posting September-November pretax profits of 6.8 billion Swedish crowns ($828 million), up 9 percent year-on-year, according to a Reuters poll.

Inditex last month reported a 4 percent rise in net profit for the February-October period -- the first nine months of its fiscal year.

"We already know H&M lowered their prices and got rid of some inventory in Q3. That leaves them in a good position for the fourth quarter, even though the retail environment has been dreadful," said Christian Nagstrup, analyst at Jyske Bank.

Sweden's biggest company by market capitalisation has already published sales figures for the fourth quarter of its fiscal year, which runs from December to November.

Sales in comparable stores fell in the quarter but overall sales rose 10 percent year-on-year in September, 9 percent in October and 7 percent in November.

"It seems they have done a lot better than the competition. And that is what I expect them to do also in 2009," said Nagstrup.

But in December, market conditions seem to have toughened. In Germany -- H&M's biggest market -- apparel sales were down 2 percent in December, according to industry journal Textilwirtschaft. In Sweden, clothing sales were down 5.6 percent, according to the country's Retail Institute.

Analysts forecast a 2.6 percent drop in H&M's December like-for-like sales, and a rise of 8.6 percent in total sales.

FIT TO COPE

While the financial crisis and the downturn in the wider economy have sent retail stocks plunging, analysts believe H&M is better positioned than others to deal with the situation.

"I still believe they are more stable than the sector as a whole. The low-price theory is still valid," said Anders Wiklund, analyst at Evli.

Last year, shares in H&M fell 22 percent, compared to a 44 percent drop in the DJ European retail index .SXRP.

The stronger dollar has however raised concerns as to whether H&M's high gross margin is sustainable since the firm makes a majority of its purchases in dollars. For the first nine months of the fiscal year the gross margin was 61.2 percent.

JP Morgan on Thursday cut H&M to "underweight" from "neutral", citing potential margin and volume pressure in the second half of this year, caused by currency effects.

Lower sourcing costs in Asia could offset the effect of a strengthened dollar, Wiklund said, adding the market is waiting for the company's position on that.

Analysts will also pore over the quarterly report, due on Jan. 29, for clues on expansion plans -- crucial to how well H&M performs in a downturn.

The firm aims to expand its store network by 10 percent to 15 percent annually and will give a target for this year as well as any plans for launches in new markets.

"I think they will stick to their plans even though the retail environment is weak," Nagstrup said.

The firm had 1.738 shops at the end of November, versus 1.522 a year earlier.

GAP Inc. (GPS.N), which jostles with Inditex for the title of world's biggest clothing retailer, reports its fourth-quarter results on Feb. 26.

($1=8.217 Swedish Crown)

(Reporting by Veronica Ek; Editing by Sharon Lindores)

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