Swedish fashion chain Hennes and Mauritz beat expectations for first-quarter profit today, offsetting economic weakness while strong March sales suggested a return to higher spending in the second quarter.
The world's third largest clothing retailer, which last year suffered its worst sales decline on record, said currency swings and a well-received spring collection had helped its profit during the period, and the second quarter had started strongly.
Quarterly gross margin came in at 61.9 per cent, higher than a mean forecast of 59.7 per cent in the Reuters poll, as mark-ups of sales to subsidiaries worked in its favour.
"A very good start for H&M," said Soren Lontoft Hansen, analyst at Sydbank. "And looking at the gross margin, it is very, very positive."
Pretax profit in the company's first quarter - which runs from December to February - was 5.1 billion Swedish crowns ($706.9 million), versus a mean forecast of 4.6 billion in a Reuters poll of analysts and a year-ago result of 3.6 billion.
The company, whose rivals include high-street fashion giants like Inditex and GAP, said economic conditions had remained weak during the first quarter although a strong start to the second suggested the situation was improving.
British retailer Marks and Spencer urged a new government to limit tax increases and focus on cutting waste as it warned of a tough year for consumers despite beating fourth-quarter sales forecasts.
Executive chairman Stuart Rose said today consumer spending was likely to be "pretty flat" this year as a new government, following elections on May 6th, takes steps to rein in borrowing which has swelled to a record 12 per cent of GDP.
"We have to pay more taxes as we go forward, everyone knows that. But there is a choice to be made," said Rose, who is among a group of business leaders that has backed the opposition Conservative Party's call to scrap a planned increase in National Insurance, a payroll tax.
Mr Rose said government needed to follow the example of businesses like M&S, which has cut around £300 million of costs over the past two years to cope with the economic downturn.
"It can't be the case that there can't be waste opportunities to be grasped in government," he told reporters.
Sales at British M&S shops open at least a year surged 5.1 per cent in the 13 weeks to March 27th, the last quarter of its financial year. That beat analysts' average forecast of 1.7 per cent in a company poll, helped by strong demand for formalwear and knitwear and a boost from the first day of the post-Christmas sale which was included in third-quarter results last year.
Pretax profit for the 52 weeks to March 27th would be £620 million to £630 million, in line with analysts' consensus forecast, as a smaller-than-expected fall in profit margins was offset by a rise in operating costs, the group said.
Finance director Ian Dyson said profits would have been at the top end of forecasts had the group not decided to pay a larger than expected £80 million bonus to staff.
International sales fell 5.9 per cent in the fourth quarter, hit by particularly weak trading in Ireland and Greece.
Like-for-like general merchandise sales, which includes clothing, surged 9.1 per cent in the fourth quarter and M&S said its clothing market share rose 110 basis points to 11.9 per cent.
Like-for-like food sales were up 1.8 per cent.
Nonetheless, analysts say new chief executive Marc Bolland, who turned round Wm Morrison Supermarkets and joins on May 1st, faces a battle to lift profits back towards £1 billion.
M&S said gross profit margins would be broadly flat in its 2010-11 financial year, while operating costs would rise 4-5 per cent, partly due to planned new selling space.
The firm will report results for the 53 weeks ending April 3rd and said the extra week would add £60 million to profits.
Reuters