Stockholm–H&M today reported a 16% rise in its third quarter sales boosted by August revenue that exceeded estimates.
In August, sales were up 19% stated in local currency terms, sending the shares to a record high. The average analysts estimate was for expansion of 12.9%. Total third-quarter sales rose 21% to 45.3 billion kronor ($6.3 billion). Excluding value-added taxes, revenue increased to 38.8 billion kronor, exceeding the 37.3 billion kronor average estimate.
New store formats and online expansion are fueling growth at the retailer, which had 3,341 stores as of the end of August. H&M is also broadening its geographic coverage amid increasing competition from online retailers such as Asos Plc (ASC) and budget chains including the U.K.’s Primark.
In the three months to August 31, sales including VAT increased by 16% in local currencies to SEK45.26 billion ($6.33 billion) from SEK37.41 billion a year earlier. Excluding sales tax, revenues grew 21.2% to SEK38.81 billion.
“Strong momentum continues,” Simon Bowler, an analyst at Exane BNP Paribas, said in a note. “While this will be a positive for sentiment, it is important to understand the cost shape driving this sales momentum. We fear gross margin weakness will be a risk at the third-quarter results, as tough comparatives across the second half expose the margin pressure from an increasingly competitive value market.”