H&M Q2 profits soar on strong sales, margins

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By LOUISE NORDSTROM, Associated Press

STOCKHOLM (AP) — Swedish fashion retailer Hennes & Mauritz AB on Wednesday reported a better-than-expected result for the second quarter, with profits soaring nearly 23 percent thanks to successful sales of its spring clothing lines as well as a stabilization of cotton prices.

The group, headquartered in Stockholm, also said it plans to launch online sales in the United States in the second half of 2012 and that it expects to inaugurate its new stores "& Other Stories" — a chain that will focus on somewhat pricier, but higher quality fashion wear — sometime next year.

"The spring collections have been well received by our customers as shown by our increased market share in a fashion retail market that continues to be challenging," CEO Karl-Johan Persson said, adding that the company will pursue its plans to open 275 stores by the end of this year and to enter new markets in Bulgaria, Mexico, Latvia, Malayasia and Thailand.

The group reported a net profit of 5.22 billion kronor ($745 million) in the March to May period, up from 4.3 billion kronor recorded in the same quarter a year ago.

Revenues climbed to nearly 37 billion kronor in the three-month period, from 32.4 billion in the same three months in 2011, thanks to strong sales of the spring collections.

The group said the high price of cotton, which took its toll on profits in the previous quarter, steadied in the second quarter, helping it keep its gross margin in line with a year earlier, at 61.7 percent.

H&M shares rose 2.5 percent to 236.20 kronor ($33.74) in early trading on the Stockholm stock exchange.

Daniel Ovin, an analyst at CAI Cheuvreux Nordic in Stockholm, described it as a "nice report. The gross margin, the sales and the ability it has to keep costs down is pleasing to see."

Ovin pointed out that the steadying in cotton prices, which had earlier weighed on margins, was particularly good news for H&M.

In the first six months of 2012, H&M has opened 119 stores and closed 11. In total, it now has 2,575 stores worldwide.

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