H&M trails Zara's Inditex in fast-fashion retail stakes

Hennes & Mauritz (H&M), Europe's second-biggest clothing retailer, reported third-quarter profit that missed estimates and delayed the start of online operations in the United States, as it falls further behind Zara owner Inditex.

Net income rose 0.9 per cent to 3.62 billion kronor (HK$4.26 billion) in the three months ended August 31, Stockholm-based H&M said yesterday, compared with the 4.05 billion-kronor average estimate of 14 analysts.

H&M fell the most in almost five months in Stockholm trading. The retailer has struggled to keep pace with the growth of larger competitor Inditex, which last week reported profit that beat estimates. H&M said profit margins shrank in the quarter, hurt by higher costs in Asia, a week after saying a heatwave in Europe caused sales to miss estimates.

"Inditex is fast-fashion so it has a compelling product which sells whatever the weather, whatever the macroeconomic conditions," Anne Critchlow, a London-based analyst at Societe Generale, said. "Inditex is rolling out online very rapidly, boosting like-for-like sales growth and has very high exposure to fast-developing emerging markets."

While H&M's sales in the quarter increased 10 per cent at local currency rates, the gross margin narrowed to 58.2 per cent from 58.6 per cent a year earlier, the company said. Inditex said last week that its gross margin widened to 59.6 per cent in the first half from 58.4 per cent a year earlier.

Lower cotton prices, which analysts had expected to boost profitability, had a "neutral to positive effect", H&M said. Currency shifts, mainly the strength of the krona against the euro, reduced profit by about 200 million kronor.