Swedish fashion giant Hennes & Mauritz says its quarterly earnings fell more than expected as it was hammered by higher cotton prices and other costs it has not passed on to customers.
Pre-tax profit at the world's second-biggest fashion retailer by sales to 3.5bn Swedish krone (£347m) in the December-February period from SK5.06bn a year earlier.
"Instead of passing on these cost increases (for cotton) to customers, we chose to strengthen our price position in order to build further on our strong market position for the long term," chief executive Karl-Johan Persson said in a statement.
Clothes makers are struggling with a spike in cotton prices in recent months and other rising costs, and more expensive firms have annnounced plans to raise prices to compensate.
But H&M, which last year embarked on a markdown journey to boost competitiveness, remains tight-lipped and investor worries about its pricing strategy have pushed down its shares more than the sector in recent months.
It said markdowns in the quarter were on the same level as in the first quarter 2010 and had a neutral effect on the gross margin.
The gross margin shrank to 57.8 per cent from 61.9 per cent compared with a forecast for 58.3 per cent.
City A.M. Reporter