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H&M Q3 profits hit by cotton price hikes

H&M, the Swedish fast fashion chain, said that profits fell in the final three months of its financial year after being impacted by the rising price of cotton.

Profit before tax in the three months to November 30 was 5.5bn krona (£534m), down 11% on the 6.15bn (£598m) krona it made a year earlier.

Sales rose to 6% to 29.7bn (£3bn) krona.

H&M chief executive Karl-Johan Persson said: “External factors change in the markets of production. Raw material prices have increased; cotton prices for example almost doubled in 2010. Naturally, H&M has to adapt to changing conditions but always in a way that is in accordance with our business concept – to offer customers fashion and quality at the best price – and in that way increase the opportunities for us to continue to take market shares. We are optimistic about the future and we plan to increase sales in comparable units in 2011.”

In the full year to November 30, like-for-likes rose 5% and total group sales excluding VAT were up 15% in local currencies. In Swedish krona sales were up 7% to 108.5bn krona (£10.6bn).

Gross profit was 68.3bn krona (£6.7bn) compared with 62.5bn krona (£6.1bn) the year before, equating to a gross margin of 62.9%. Group profit after tax was 18.7bn (£1.8bn)krona.

Like-for-like sales were flat in December with total sales up 8% year-on-year. Total sales were up 9% in the period from January 1 to 25.

Persson said: “During [2010] we improved our market position further with a strengthened customer offering by giving the customers even more fashion and quality at the best price. The economy improved from 2009 but in several countries the economic situation was still uncertain and difficult.”

In 2011, the chain will open around 250 stores net in existing markets and give new markets including the US, Romania, Croatia, Singapore and two franchise markets  Morocco and Jordan.

It will also launch an online offer in the US and relaunch its H&M shop online in the markets where it already offers online and catalogue sales.

Persson added: “External factors change in the markets of production. Raw material prices have increased; cotton prices for example almost doubled in 2010. Naturally, H&M has to adapt to changing conditions but always in a way that is in accordance with our business concept – to offer customers fashion and quality at the best price – and in that way increase the opportunities for us to continue to take market shares. We are optimistic about the future and we plan to increase sales in comparable units in 2011.”

On December 31, H&M had 2,2090 stores compared with 1,988 a year before.

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