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UPDATE 2-H&M caught out by cold spring weather and strong dollar

Published 2016-06-22, 04:53 a/m
© Reuters.  UPDATE 2-H&M caught out by cold spring weather and strong dollar
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* Q2 pretax profit down 17 pct, meets analyst consensus
* Shares down 0.4 pct, widening discount to Inditex
* Impact of strong dollar set to persist
* High inventories likely to mean more markdowns

(Adds details, background)
By Anna Ringstrom
STOCKHOLM, June 22 (Reuters) - Profit at Swedish fashion
retailer Hennes & Mauritz HMb.ST fell 17 percent in the second
quarter as cold weather hit sales of its spring clothes and a
strong dollar increased its costs.
H&M, which buys the bulk of its clothes in Asia on U.S.
dollar contracts while selling most of them in Europe, is more
exposed to the U.S. currency than Zara owner Inditex ITX.MC
which makes more in-house, either in or near Europe.
A strong dollar will have a negative impact on purchasing
costs for the third quarter and a neutral effect in the fourth,
H&M said on Wednesday. It had previously said the impact could
be slightly positive by then.
H&M, which is also facing intensified competition in budget
clothing from players such as ABF's ABF.L Primark, said higher
markdowns were mainly due to spring garments not selling as well
as planned because of unseasonably cold weather in key markets.
Pretax profit at H&M from March to May fell to 7.0 billion
Swedish crowns ($847 million), in line with a Reuters poll of
analysts but underperforming Inditex which last week beat
forecasts with a 6 percent rise in profit for February to April
as fast turnover helped it react to the weather.
Shares in H&M, which are down 17 percent this year, were off
0.44 percent by 0820 GMT, further widening their discount to
Inditex to trade on 19.5 times forward earnings, compared to 28
times for the Spanish firm.
H&M said the weak demand, mainly in March and April, had
contributed to higher inventories than expected as it entered
its third quarter, which analysts said could mean more weakness.
"That implies further markdowns to come, which should in
turn put pressure on the third-quarter gross margin," said
Societe Generale (PA:SOGN) analyst Anne Critchlow.
H&M's gross margin shrank to 57.6 percent in the second
quarter from 59.4 percent.
Sales between June 1 and June 21 were up 7 percent in local
currencies, H&M said. This was slightly slower than the 9
percent it saw in May and well below the 15 percent Inditex
reported at constant exchange rates for May 1 to June 13.
H&M, which has also seen profitability dented by heavy
investment in ecommerce, said it planned to go online in Canada
and South Korea later this year and continue a fast roll-out in
2017, while also opening stores in four to five new countries,
including Colombia.
($1 = 8.2610 Swedish crowns)

(Editing by Emma Thomasson and Alexander Smith)

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