H&M Q1 Sales Surge Surprises

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Looks from H&M's "Exclusive Glamour Collection," eco-friendly fashions that hit stores in April

Stockholm—H&M’s strategy of keeping prices low and not passing on higher costs on cotton apparently is paying off, analysts said Friday.

For its first quarter ended Feb. 29, H&M said total sales (including VAT) increased 13% to 27.83 billion kronor (about $4.05 billion) from 24.5 billion kroner a year earlier. That was ahead of analysts’ average estimate expecting sales of 27.2 billion kroner for the quarter. Comparable store sales rose 3%.

H&M also reported that its February sales rose 2%, against beating analysts’ average estimate for a 1.6% decrease.

An expected decrease was due to retail analysts forecast that slowed consumer spending in Europe would hurt H&M. Europe alone accounts for about 80% of H&M’s sales.

Gaining Market Share By Keeping Prices Low

“H&M’s strategy of keeping prices low is gaining momentum, and people are clearly shopping at H&M rather than at the competitors,” said Nicolaj Jeppesen, analyst at Sydbank.

Moreover, H&M has the strongest retail space expansion in non-food retail channels in both percentage growth and physical space, said Anne Critchlow, analyst at Societe Generale.

H&M continues to expand outside of Europe, particularly in China where it plans to open more stores than anywhere else this year.

The specialty retailer continues to garner notoriety–as well as sales–in recent capsule collaborations. Its Marni collection sold out its first day in the United States earlier this month. And one of the outfits H&M buyers selected on the new reality TV series “Fashion Star,” a dress by contestant Sarah Parrout, sold out on its website within days of the show’s debut.

Enlisting the help of Amanda Seyfried, Viola Davis and Kristen Davis, all of whom wore pieces from the new “Exclusive Conscious” collections at red carpet events, H&M hopes to have a hit with sustainable fashion, too.

Slated to hit 100 H&M stores worldwide on April 12, the Exclusive Conscious collection contains eco-friendly outfits made from hemp, organic cotton, recycled polyester and other sustainable materials. No retail prices were released yet.

The company’s full quarterly report will be released on March 29.