HENNES & MAURITZ AB 
STOCKHOLM (Reuters) - Fashion retailer Hennes & Mauritz's (>> H & M Hennes & Mauritz AB) recent strong sales growth has slowed sharply this month as unusually warm weather delayed purchases of cold-weather gear, it said on Thursday after reporting quarterly profit in line with expectations.
The Swedish company said sales in the Sept. 1-23 period rose 7 percent, compared with a near-20 percent increase in August, putting September on track to be the slowest month for sales growth this year.
In the six months from March through August, sales growth averaged 16 percent.
In H&M's home town of Stockholm, which has enjoyed unseasonably warm weather this month, one store had sweaters, scarves, gloves and jackets with faux fur lining in autumn colours of browns and maroon on prominent display.
"September was a little lower than we had planned because some products haven't sold due to the warm weather," Chief Executive Karl-Johan Persson told a news conference.
The performance of the world's second-biggest fashion retailer in recent months had helped its shares outperform those of bigger rival Inditex (>> Inditex SA), pulling them up 6 percent this year against a 7 percent fall for the Spanish group.
However, the news of sharply slowing sales in September pushed H&M shares down 3.5 percent by 0908 GMT (10.08 a.m. BST) compared with a 0.4 percent weaker European retail index <.SXRP>, while Inditex shares were little changed. H&M shares trade at 23 times forward earnings against 25.5 times for Inditex.
"Clearly, H&M can deliver very strong earnings growth when they are able to grow sales at about 20 percent, but given a long run average like-for-like sales rate of 1 percent, we remain cautious," Bernstein analyst Jamie Merriman said.
H&M reported pre-tax profit up 20 percent at 7 billion crowns ($974 million) in its June-August third quarter, in line with analysts' forecasts.
MARGINS UNDER PRESSURE
Inditex last week reported that sales growth for the period Aug. 1 to Sept. 12 in local currencies slowed to 10 percent from 11 percent in the first half. It also reported a worse than expected fall in second-quarter margins to 56.5 percent as trading in its lucrative overseas markets turned tougher.
H&M said its third-quarter gross margin fell slightly to 58.3 percent from 58.8 percent a year ago, hurt by higher raw materials prices, cost inflation, capacity at suppliers, purchasing currencies and transportation costs.
"Higher manufacturing costs and price pressure will continue to lead to gross-margin compression," said Bernstein's Merriman, confirming her "underperform" rating for H&M shares.
H&M has said that a drive to increase wages for Asian clothing workers, who have recently been involved in violent clashes in Cambodia, was likely to dent profitability as weak demand and stiff competition made it hard to pass on costs to shoppers.
The company plans to open a net 375 new stores this year but said it will delay its launch in India until spring 2015, but did not explain why. The launch was previously scheduled for this autumn.
The Philippines will become a new market for the group next month and it will open shops in South Africa, Peru, Taiwan and Macau in 2015.
H&M also said that online sites launched in Italy and Spain in August and China this month had made a very good start. The company, which reiterated plans to open in eight to 10 new online markets next year, was slower than many of its peers to start selling online and now has an online presence in 13 markets, compared with 27 for Zara-owner Inditex.
Zara will join China's fast-growing Tmall online marketplace, run by e-commerce giant Alibaba, in October and Persson said it is possible that H&M could also go that route but would concentrate on its own site in China for now.
(Additional reporting by Rebecka Roos and Emma Thomasson in Berlin; Editing by Greg Mahlich and David Goodman)
By Mia Shanley
