High cotton prices dent H&M profits

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Fashion retailer H&M said profits had dived 10% in its fourth quarter as the Swedish chain grappled with soaring cotton prices

Fashion retailer H&M said profits had dived 10% in its fourth quarter as the Swedish chain grappled with soaring cotton prices.

The company, which has more than 180 stores in the UK and some 2,200 stores worldwide, said margins were under pressure from higher raw material prices, with cotton costs doubling to a 15-year high in 2010, as well as rising transport costs.

The Stockholm-based retailer, which operates in 38 countries, reported profits of 7.2 billion Swedish kronor (£700 million) in the three months to November 30, compared to 7.99 billion Swedish kronor (£780 million) a year earlier.

The disappointing results weighed on British retailers as shares in Next, Primark owner Associated British Foods and Marks & Spencer all slipped on the stock market.

Looking ahead, H&M said it would open around 250 new stores in 2011 – with the UK highlighted as one of three markets set for the largest expansion.

H&M has joined a slew of retailers, including Primark, Supergroup and Next, troubled by rising commodity costs.

The company is particularly vulnerable to rising costs as its strategy focuses on offering fashionable garments at low prices.

But over the full-year the company saw a 13% increase in profits of 25 billion Swedish kronor (£2.4 billion) and a 7% boost to sales, excluding VAT, to 108.5 billion Swedish kronor (£10.5 billion).

Chief executive Karl-Johan Persson said: “Raw material prices have increased – cotton prices for example almost doubled in 2010.

“Naturally, H&M has to adapt to changing conditions but always in a way that is in accordance with our business concept, to offer customers fashion and quality at the best price, and in that way increase the opportunities for us to continue to take market shares.”

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