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H&M Beats Earnings Estimates on Sales Gains Across all Brands

Hennes & Mauritz AB, known around the world as H&M, announced results for its first fiscal quarter ended Feb. 28 that beat analyst expectations.

Sales net of value-added tax (VAT) increased by 25 percent on a constant currency basis to 40.28 billion SEK (Swedish kronor) ($4.69 billion) from 32.1 billion SEK ($3.73 billion) in the prior year. In local currencies, the increase was 15 percent. The company attributed the gains to well-received collections for all brands in the group, including those at the flagship H&M stores and the company’s smaller brands that include COS, & Other Stories, Monki and Weekday.

Net sales in Germany, the company’s largest market, grew by 12 percent on a constant currency basis to 8.6 billion SEK ($1 billion). The U.S. was the company’s second-largest and fastest growing market in the quarter, increasing by a stunning 57 percent on a constant currency basis to 5.4 billion SEK ($630 million). China was the second fastest-growing market, up 54 percent to 2.1 billion SEK ($250 million). In recent months the company has stated that China will eventually overtake Germany as the company’s largest market. During the quarter, H&M opened nine stores in China, the same number as in the U.S.

Gross profit increased by 26 percent to 22.2 billion SEK ($2.6 billion) from 17.6 billion SEK ($2.1 billion), corresponding to a gross margin of 55.2% of net sales, up from 54.9% in the prior year period.

Operating margins expanded by 90 basis points to 11.5% of sales.

Net income increased by 36 percent to 3.6 billion SEK ($423 million) or 2.18 SEK per share, from 2.6 billion SEK ($300 million), or 1.60 SEK per share in the prior year period. Analysts had expected a net profit of 3.37 billion SEK, or $390 million.

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During the quarter, the company opened 40 net new stores, including the first H&M store in Taipei, Taiwan. The company plans to open 400 net new stores in the current fiscal year, including its first in Lima, Peru and the first of at least two planned stores in Macau over the next few months. The first stores in South Africa and India are planned to open toward the latter half of the year.

The company said it achieved the strong gains despite its continued long-term investments in technology.

Nine new online markets will open in 2015: Portugal, Poland, the Czech Republic, Romania, Slovakia, Hungary, Bulgaria and Belgium will open during the spring and Switzerland will open in the autumn.

CEO Karl-Johan Persson said in a news conference in Stockholm, “We have made a very good start to 2015 — in terms of both sales and profits. Our attractive customer offering and strong expansion both through stores and online, as well as our work on continuous improvement, are among the reasons for increased market share gains and good profits.”

Persson added that, “Another example of an exciting upcoming opening is our new flagship store on Herald Square in New York, which will be one of our largest stores in the group with an area of 5,700 square meters [61,999 square feet] in total. So we have many interesting openings to look forward to — both as regards stores and online.”

The company says while it continues to broaden its H&M product range to include categories like activewear, shoes and beauty, it is also developing its other brands COS, & Other Stories, Monki, Weekday and Cheap Monday, which are all becoming more and more established in the world of fashion.

H&M was founded in Sweden in 1947 and is traded on the NASDAQ OMX Stockholm stock exchange. The H&M group has more than 3,500 stores (of which around 3,300 carry the H&M nameplate) in 57 markets including franchise markets. The company has more than 132,000 employees worldwide, and had sales (excluding VAT) of SEK 151.4 billion ($17.6 billion) in its most recent fiscal year, up 18 percent over the prior period. The stock has risen by 5.5% so far in 2015.