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H&M Q4 profit gain tops analyst estimates

Hennes & Mauritz AB, Europe's second-largest clothing retailer, said Q4 profit increased 18%, beating analysts' estimates, as the company spent less on marketing and offered smaller discounts.

Net income rose to 3.8 billion kronor (€418.6 million) in the three months ended November 30 from 3.23 billion kronor a year earlier, the Stockholm-based company said today in a statement. The median estimate in an 11-analyst survey was 3.4 billion kronor. The shares rose as much as 5.7% to a record. „It's pulled the rabbit out of the hat,” said Daniel Broby, who helps manage $14 billion as CIO at Bankinvest in Copenhagen. Analysts had expected profit to rise 5.3%, the slowest rate in three years, because of unseasonably warm weather and a higher tax rate. H&M sold a one-time collection by Dutch designers Viktor & Rolf in November as a follow-up to a similar collaboration with Stella McCartney last year. The retailer said it had to offer bigger discounts on sweaters and outdoor clothing in the Q4, though overall reductions were lower than a year earlier. Shares of H&M rose as much as 19.5 kronor to 364 kronor in Stockholm. They traded at 362.5 kronor at 9:11 a.m. local time. The stock gained 28% in 2006, while shares of Spanish rival Inditex SA rose 48%.

The results are „pretty much a blow-out,” said Rebecca McClellan, an analyst at JPMorgan Chase & Co. in London who has an „overweight” rating on the stock. She said the „key news” is that operating expenses rose 3% compared with her estimate of 9.8% in the Q4. Same-store sales, or revenue at outlets open at least a year, rose 5% in December, the first month of the current fiscal year, H&M said. That also beat the median estimate of eight analysts for a gain of 3% on that basis. H&M said it will introduce two new formats this fiscal year and plans to increase its number of stores 13% to 1,515. The retailer will start a more expensive format of clothing called COS-Collection of Style. The first store will open in March on London's Regent Street, followed by nine other outlets in the UK, Germany, the Netherlands and Belgium. H&M Home will start in the fall of this year, initially through online and catalog sales, the retailer said. The chain will sell products such as sheets, curtains and cushions, competing with Inditex's Zara Home chain. The format will first start in the Nordic region, the Netherlands and Germany.

Total revenue advanced 8.3% in the Q4 to 19.5 billion kronor (€2.14 billion), the company said. Earnings before interest and tax rose 26% to 5.28 billion kronor.(€581.7 million) The median analyst estimates were for sales of 19.6 billion kronor and Ebit of 4.8 billion kronor. The company boosted its store count by 13% to 1,345 shops in the year through November. The retailer, which previously got about a third of its sales from Germany, is depending more on markets such as the UK and the US for revenue. H&M got a quarter of its sales from Germany last year, and the UK became its second-largest market, surpassing Sweden. US revenue last year rose 25% in dollars, making that country H&M's fifth-largest market. H&M buys more than 60% of its clothes in Asia and sells them on at about double the price. Purchasing costs declined in the Q4 along with the dollar, which was on average 5.7% lower against the euro. The price of Asian clothes is linked to the US currency.

„Hennes & Mauritz and other retailers are being saved by the weak dollar,” said Henrik Schultz, an analyst at Danske Equities who has a „hold” recommendation on H&M stock. H&M, which sells dresses for as little as €14.90 ($19) and blouses for €9.90, last year lost its former rank as Europe's largest clothing retailer to Inditex. Arteixo, Spain-based Inditex, owner of the Zara chain, has tripled its shop count in six years and reported faster revenue growth than its rival in the past 11 quarters. Of the 32 analysts whose ratings on the Swedish retailer's stock have been collected by Bloomberg, 16 have a „buy” or „overweight” recommendation, nine rate the shares „hold” and seven have a „sell” or „reduce.” The retailer said it plans to raise its dividend 21% to 11.50 kronor a share. (Bloomberg)