STOCKHOLM – [20.06.07] Second quarter profit at Hennes & Mauritz , Europe’s second largest clothing retailer, grew 31% before tax to SEK 3.47 billion (€541M) thanks to improved operating margins and stronger sales growth.

A weaker dollar lowered the costs of purchasing in Asia where H&M sources around 60% of its product and this, together with more full-priced selling, lifted gross margins by two percentage points in the period from 59.6% to 61.6%.

Sales excluding VAT rose 18% to SEK 20.050 billion (€3.9 billion) an increase of 18% over the previous year. In local currencies, the increase for the second quarter was 20% and in comparable stores 7%, helped by the M by Madonna line that was launched in March.

H&M’s selling and administrative expenses in relation to sales have decreased marginally (to 37.0% from 37.3%) due to stronger sales and tighter cost control. Stock levels in comparable stores were around 10% down on the same period last year.

H&M opened 74 new stores during the first quarter including stores in new markets such as Hong Kong, Slovakia, Greece and Qatar. It operated 1,420 stores at the end of May. The company intends to open a further 95 stores in the second half of 2007 mainly in the USA, France, Spain, Germany, the UK and Italy with three additional stores in Hong Kong and one more store in Shanghai this autumn.

Sales for the H&M Group excluding VAT for the first six months of the financial year increased 15% to SEK 36.82 billion. In local currencies, the increase was 18% and in comparable stores 6%. Profit after financial items for the first six months increased 29% to SEK 8.54 billion, while Group profit after tax increased to SEK 5.76 billion from SEK 4.45 billion in the year ago period. This corresponds to SEK 6.97 per share, up from SEK 5.38 per share a year ago.

H&M also announced a new collaboration with Italian designer Roberto Cavalli who will create a one-off exclusive collection for women and men available in approximately 200 selected H&M stores this autumn. The company hopes that this high-profile collection will have a similar impact to its Madonna line although this can also result in sales volatility.