H&M braces for dollar headwinds

(BVO) – Sales at Sweden’s H&M continue to soar.

The budget fashion retailer beat expectations in the first-quarter delivering pre-tax profits of $551 million dollars.

Sales in local currencies rose 15 percent.

But a strong dollar is causing problems – pushing up costs for the world’s second largest fashion retailer and others.

Kerry Craig from JP Morgan says investors will have to consider currency movements when choosing where to invest, especially where sterling’s concerned.

SOUNDBITE: Kerry Craig, Global Market Strategist, JP Morgan, saying (English):

“They need to look at where companies generate the bulk of their revenues from. If they’re a European company generating those revenues in the US, then the currency movement has been quite favourable, if we continue to see a strengthening of the dollar. However if they are reliant on imports for their products from the US and are selling into the euro, then perhaps that’s not the best situation as those imports become more expensive for that company.”

The group said store and online expansion fuelled sales and profits.

It’s planning 400 new shops and an online presence in nine more markets.

All signs of an improving European economy.

SOUNDBITE: Kerry Craig, Global Market Strategist, JP Morgan, saying (English):

“Retail sales are building, they were very strong in Germany. Car registrations have also increased across the board and in periphery countries as well. So a lot of that pent up demand is coming through in the market at the moment. It does signal how much the weakening of the oil price really can support the consumer.”

H&M’s gross margins remain roughly unchanged at 55 percent.

Still analysts fear it may not last if the U.S. dollar, which H&M uses for most of its purchases, continues to rise.