H&M sees 6% drop in July sales

H&M posted a 6% fall in like-for- like sales in July as the world’s second-largest clothes retailer suffered from weak consumer sentiment in Europe where it makes most of its sales.

The July figure was the biggest monthly sales drop for the Swedish budget fashion chain since April 2010, when sales in local currencies at established stores were also down 6%.

Société Générale analyst Anne Critchlow said the data was disappointing. “Comparatives are tough while economic conditions are tough across Europe — and will perhaps get worse.”

Competitors most likely had bigger markdowns than H&M in the month, said an analyst who declined to be identified.

The average forecast in a Reuters poll of analysts had been for H&M to report a 5.1% comparative sales fall.

The world number two clothes retailer, after Zara parent company Inditex, said total July sales, including stores opened in the past year, were up 3% in local currencies — the smallest rise since March, missing expectations for a 4.2% increase.

Like-for-like sales at H&M often track developments in its largest market, Germany. Clothing sales there were flat in July, according to industry journal Textilwirtschaft.

Inditex has suffered less than H&M from slack European demand because of a stronger presence in fast-growing emerging markets.

July is the second month of H&M’s financial third quarter. Turnover in its second quarter was up 2% year on year. In June, total sales grew 5% while like-for-like sales fell 4% amid tough year-ago comparisons and major markdowns by competitors.

H&M, which like many clothing retailers is also suffering a margin squeeze between a spike in costs and an effort to hold prices to protect market share, said it had 2,306 stores at the end of July compared with 2,066 a year earlier. The group has stores in 40 countries and plans for 250 more stores in 2011 from 2010.

H&M, whose rivals include Gap, Next and Marks & Spencer, does not release absolute monthly sales figures, only the percentage change, and does not comment on figures.