H&M first quarter profit misses forecast as heavy investment weighs

STOCKHOLM, Sweden - H&M, the world's second biggest fashion retailer, posted weaker-than-expected first-quarter profits as it invested heavily in areas such as online services and faced a still-challenging economic environment in many markets.

The Swedish budget fashion group posted a pretax profit of 3.5 billion crowns (£326 million), well short of average analyst forecasts for 3.8 billion and below even the lowest estimate in a Reuters poll of analysts.

The gross margin came in at 54.9 percent, below a forecast 55.3 percent and down from 60.8 percent in the previous quarter.

H&M, which had already reported quarterly revenues for the December through February quarter, said sales rose by 12 percent during most of March in local currencies after rising 11 percent in February.

"Sales have got off to a good start with an increase of 12 percent in local currencies in the first quarter in a fashion retail market that in many places is still characterised by a challenging macroeconomic situation, and we have continued to gain market share," Chief Executive Karl-Johan Persson said in a statement.

It said substantial long-term investments in IT and online - it launched online services in France this month - weighed on its results in the quarter.

An unusually cold and snowy winter in the United States disrupted economic activity at the end of 2013 and the start of this year, weighing on the retail sector.

The first quarter is traditionally the weakest quarter for the retailer.

H&M is targeting Australia, the Philippines and India as its new markets this year and it plans to roll out online services in Spain, Italy and China.

It said its recently launched sports line was well received in selected H&M stores while COS and & Other Stories will open stores in several new countries this year, including the United States.