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Reuters
Published
Feb 3, 2011
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Investors eye H&M Q4 report for cost pressure

By
Reuters
Published
Feb 3, 2011

STOCKHOLM, Jan 27 (Reuters) - The impact of rising costs on margins will be in focus when budget fashion retailer Hennes & Mauritz (HMb.ST) reports fourth quarter earnings on Thursday.

H&M
Conscious Collection – Sustainable Style at H&M

More expensive rivals aim to pass on soaring cotton prices CTH1 and other cost inflation, but the Swedish giant has stayed quiet on how to respond.

Raising prices aggressively could damage H&M's low-price image. The retailer last year cut prices to hold on to market share after the global downturn.

The world no. 3 fashion firm is also harder hit than some, such as rival Inditex (ITX.MC), by rising labour costs in Asia.

H&M
Conscious Collection – Sustainable Style at H&M

H&M's gross margin is seen shrinking to 63.7 percent in the last quarter of the December-January fiscal year from 66.7 percent a year earlier, according to a Reuters poll.

Pretax profit is seen up 2 percent to 8.17 billion crowns ($1.25 billion).

Analysts see gross margin pressure denting earnings, and possibly also shares, further in 2011.

Expectations on H&M's fourth-quarter and 2011 profit have cooled after the third-quarter report unveiled higher transport and raw material costs along with shrinking spare capacity and less favourable exchange rates.

H&M shares, which had benefited from a global recovery, have shed around 15 percent from a record 261 crowns in September.

December sales are seen up a modest 1.3 percent in existing stores, as bad weather discouraged shoppers in some of H&M's main markets.

(Editing by David Cowell)

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