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Clothing chain H&M sees profits decline

Family-controlled fashion giant Hennes & Mauritz announced on 31 March that its net profits for the first quarter ending February 2011 fell by 30% compared with the same period last year, due to “external factors”.

Family-controlled fashion giant Hennes & Mauritz announced on 31 March that its net profits for the first quarter ending February 2011 fell by 30% compared with the same period last year, due to “external factors”.

The Stockholm-based retailer said that its net profits for the quarter fell to $414 million from $594 million the year before. It attributed this drop to negative currency effects, high cotton prices and an increase in transportation costs.

Its sales too saw a drop of 1% to around $4 billion, which the company said was caused by a discount driven market and poor weather conditions in December.

Third-generation chief executive Karl-Johan Persson said in a statement that external factors beyond the family’s control had a negative effect on the results. “Instead of passing on these cost increases to customers, we chose to strengthen our price position in order to build further on our strong market position for the long term,” he said.

The drop in profits illustrates the impact rising commodity prices has on the retail sector. Following its announcement, H&M share prices dropped by around 4% and was trading at a low $33.3 at noon on 31 March.

Prior to this announcement, the company appeared relatively untouched by the crisis and subsequent recession, maintaining sales growth. Karl-Johan took the top job in 2009 and successfully led the group during a particularly difficult period for the fashion industry. The company had 2010 revenues of around $20 billion, up from $15.2 billion in 2009.

The group also said it plans to open around 250 stores during the year, with focus on China, the UK and the US.

H&M is the world’s third-largest fashion chain after fellow family businesses US-based Gap and Spain-based Inditex, owners of the Zara brand. H&M, founded in 1947 by Karl-Johan’s grandfather Erling Persson, was originally named “Hennes”. The Persson family own 37% of the company’s common stock and 69% of the voting stock.

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