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H&M UK sales rise but group profits decline

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Fashion retailer H&M’s UK operation was one of the company’s star performers in the first half of its financial year, but higher cotton prices and other inflationary pressures meant group profits declined year-on-year.

Sales in the UK between December 1st and May 31st totalled SEK 4.24 billion (£411 million), representing a nine per cent increase on the same period one year before, while a net five stores were opened on British soil during the period.

Other strong growth markets for H&M included the US, China, Russia and South Korea, but the performance of these individual nations was unable to stop profit after financial items falling from SEK 8.95 billion to SEK 6.88 billion over the course of the year.

It resulted in earnings per share for the half-year decreasing 23 per cent to SEK 4.15.

A statement from the business today said that sales in SEK, excluding VAT, were strongly negatively affected by the effects of currency translation, with year-on-year trading up just slightly from 51.88 billion to SEK 52.14 billion.

In the firm’s second quarter, group sales were up two per cent in comparable units, but H&M’s decision not to pass the increased costs of materials on to its consumers is having a impact on its bottom line, as explained by CEO Karl-Johan Persson.

“We continue to gain market shares in a very challenging market, which proves H&M’s strong position,” he commented.

“Increasing interest rates, higher energy prices and austerity measures in many economies have decreased consumer spending power. During the spring, the fashion retail industry has been characterised by many price campaigns and special offers.

“Our profitability remained strong with an operating margin of 20.3 per cent despite strong negative effects from many external factors that were beyond our influence, such as the high cotton prices.”

H&M plans to add approximately 250 net stores during the remainder of the 2010/11 financial year, and unsurprisingly the strong-performing markets of China, the UK and US are expected to be the main areas for expansion.

One UK outlet already planned is for the Westfield Stratford shopping centre in east London, which is scheduled to open on September 13th this year.

“We are optimistic about the future for H&M despite challenging conditions both in the sales markets and in the sourcing markets,” Persson added.

“We see great potential for future growth in existing as well as in new markets. Our business concept works well in all our markets as seen for example in recently added and fast growing markets such as China where we expand more rapidly.”

Source : Retail Gazette

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