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Price cuts to clear summer stock fray H&M margins

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Despite the extra effort to clear the shelves ahead of autumn, inventories were up 8 per cent at the end of the quarter.

[STOCKHOLM] Fashion retailer H&M reported a 20 per cent fall in quarterly profit on Thursday as summer discounts hurt margins, while sales slowed towards the end of this month.

The world's second-biggest fashion retailer after Zara owner Inditex has been struggling to keep up with rapid changes to its retail market as competition intensifies and young shoppers move online.

Pre-tax profit for the three months to Aug 31 fell 20 per cent to 5.02 billion Swedish crowns (S$839 million). Analysts had expected a fall of 21 per cent, according to a Reuters poll.

Shares in H&M were down 4.6 per cent at 0710 GMT, taking a year-to-date fall to 15.8 per cent.

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"The fashion retail sector is growing and is in a period of extensive and rapid change as a result of ongoing digitalisation," CEO Karl-Johan Persson said.

"Our growing online sales did not fully compensate for reduced footfall to stores in several of our established markets, which has resulted in our total sales development not reaching our targets so far this year."

The company has said this month that markdowns to shift piled-up unsold garments were much larger than usual, and it said on Thursday its gross margin shrank to 51.4 per cent from 54.0 per cent.

Markdowns in relation to sales grew 2.8 percentage points.

However, despite the extra effort to clear the shelves ahead of autumn, inventories were up 8 per cent at the end of the quarter.

H&M said it saw great potential to achieve lower inventory levels in the future thanks to faster lead times for fashion items, more efficient supply chains and more in-season purchases.

It said it now planned a net increase of stores in the year of 385, down from previous guidance for around 400.

REUTERS