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Higher costs squeeze HM profits

Higher costs squeeze HM profits
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Sweden’s Hennes and Mauritz has posted a slightly bigger than expected fall in quarterly pretax profit amid what it calls challenging market conditions.

The world’s second-largest fashion retailer said it is facing high cotton prices and wage increases in low-cost manufacturing centres, but has taken a decision not to pass those on to shoppers who are struggling with rising fuel and food prices, as well as government austerity measures.

Pretax profit at the Swedish budget apparel firm was 5.75 billion Swedish crowns (628 million euros), compared with 7.04 billion in the same period last year.

The high cotton prices, wage increases in Asia where the company sources many of its clothes, and a strong Swedish crown put pressure on earnings.

“Increasing interest rates, higher energy prices and austerity measures in many economies have decreased consumer spending power. During the spring, the fashion retail industry has been characterised by many price campaigns and special offers,” Chief Executive Karl-Johan Persson said. “We continue to gain market shares in a very challenging market,” he added.

H&M has the bulk of its business in Europe, where investors are worried about a sovereign debt crisis, and is more exposed than main rival Inditex , the world no.1 clothes retailer, to rising labour costs in Asia.

Zara owner Inditex last week posted a 10 percent rise in quarterly net profit as expansion in emerging markets helped offset sluggish demand in Spain and rising costs.

World no.3 fashion retailer Gap slashed earnings forecasts last month, saying higher price tags would not offset the cotton costs.

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