H&M is hit by rise in costs of materials

SWEDISH fashion group Hennes & Mauritz (H&M) said profit margins weakened in its third quarter, as costs rose.

While H&M boosted profit by 20 per cent thanks to popular sales campaigns and its wide geographical spread, analysts worried about how the world’s third biggest clothing retailer – behind Gap and Inditex – will cope with an expected jump in input costs.

The company had benefited from favourable exchange rates, transport costs and raw material prices, as well as spare capacity.

But H&M said those factors had gradually diminished during the quarter.

Analysts said H&M was cutting prices at a time when others were raising them to offset higher costs.

Chief executive Karl-Johan Persson would not be drawn on price increases but said the company was braced for a further hit on gross margin in the fourth quarter and would be watching competitors.

But he said: “We will look at what the competition is doing and how the market is at that point in time, but we do not have any plans to raise prices at the moment.”

Persson said the company was eyeing new markets in the southern hemisphere, including Australia and South America.

“H&M was always going to have the biggest gross margin pressure next year and if it is finding it harder than other retailers to raise prices, that is worrying,” Societe Generale analyst Anne Critchlow said.

The company said it would be forced to delay some new store openings because of the continuing pressure on the consumer sector. H&M has 2,000 stores in 37 countries, with 76,000 staff. Germany is the retailer’s biggest market.