H&M, the world's second biggest fashion retailer, posted an unexpected drop in quarterly earnings, thanks to competition in tough European markets and the cost of its expansion drive to take on rival Zara.
The Swedish group does the bulk of its business in Europe, where the region's debt crisis and rising unemployment have dampened consumer spending.
At the same time, it has been making long-term investments in online shopping and new chains of stores, such as the recently-launched "& Other Stories" in a bid to catch up with the broader offering of Spanish rival Inditex, which runs the Zara chain and a string of other brands.
"These long-term investments have created cost increases and to a great extent have not yet generated any revenue," chief executive Karl-Johan Persson said yesterday.
"However, we consider these investments to be both necessary and wise as they aim to secure future expansion and profits and thereby further strengthen H&M's position," he added.
Pretax earnings in the September-November period fell to SEK6.6bn (€696m) from SEK6.8bn a year-earlier.
H&M said a tough economic backdrop led to widespread price promotions and markdowns in the fashion industry, although its own level of markdowns in relation to sales was the same as in the fourth quarter of the year before.
Stocks were somewhat higher than planned at the end of the period – although the group said markdowns in the first quarter would also be around the same level as the year earlier. (Reuters)