H&M defies retail gloom as July sales top forecast

In June, this measure of sales dipped 2% as economic gloom weighed on the retail sector. Overall sales rose 15%, topping forecasts for a 12.7% rise, according to a Reuters poll.

“Given the weakness in the general retail market in Europe, it's a nice increase,” said Mats Hyttinge, analyst at Glitnir.

Hyttinge cited H&M's market position as a retailer of fashionable but not overly expensive clothing as a reason for their outperformance.

“The price structure they have is pretty attractive,” he said.

The stock has gained 15% from a nearly two-year low of 279 crowns a month ago. But it is still down 28% over the past 15 months after setting a life-time high of 450 crowns in April 2007.

H&M's sales boost came despite recent downbeat news from Germany, the Swedish retailer's biggest market, where industry data showed apparel sales fell 2% in July.

“Sales are a little bit better than the market expectations. It shows the trend we have seen - that in a weak market H&M will perform better than the underlying clothing market,” said Peter Wallin, analyst at Kaupthing.

Inditex, Europe's biggest clothing firm, has suffered a slowdown in turnover this year although it has not adjusted its target for full-year growth of 4% in same-store sales.

Hyttinge said it was tough to plunge into retail sector shares given current conditions but that longer-term investors might find some appeal in H&M.

“If you're a long-term investor, I think it's an interesting opportunity,” he said.

If the company can continue to deliver this kind of growth, he said, at some point the market will view it as a bargain. Its price/earnings ratio is already around multi-year lows.

“At a certain point you say, 'Now it's time to get in again',” Hyttinge said. “The only thing that worries us is the dollar development.”

The dollar has rebounded sharply in the past couple of weeks, a move which, if sustained, could eat away at H&M's margins.

“That could be a little killjoy,” Hyttinge said. (Reuters)