H&M second-quarter profit beats expectations despite cautious consumers

By Greta Rosen Fondahn and Helen Reid

STOCKHOLM, June 26 (Reuters) - Swedish fashion retailer H&M HMb.ST reported slightly stronger second-quarter profit on Thursday, an encouraging sign as CEO Daniel Erver tries to reboot the brand and lure more shoppers in with trendier clothes.

H&M shares gained 7.5% in early trading as investors focused on the profit rather than second-quarter sales, which fell slightly more than predicted. Erver has said his focus is on profitability rather than solely sales growth.

The world's second-largest listed fashion retailer also said it expected sales in June, measured in local currencies, to rise 3% - an improvement after a 6% fall in the same period a year ago.

"Our collections are more current, they are more on trend, more fashionable, and the customer reception has been strong throughout this quarter," Erver said in a press conference.

U.S. tariffs have caused "a very turbulent situation", Erver added, saying competitors had raised prices in the U.S. as a result.

H&M is focused on keeping prices competitive, Erver said, as consumers are particularly price-sensitive given uncertainty around the global economy.

In the March to May period, H&M's sales were 56.7 billion Swedish crowns ($5.99 billion), down from 59.6 billion a year ago. Analysts polled by LSEG had forecast revenue of 57.0 billion crowns.

Zara owner Inditex ITX.MC earlier this month also reported disappointing sales, in a sign consumers are pulling back from spending on clothes as U.S. tariffs create risks for global economic growth.

H&M's second-quarter operating profit was 5.91 billion crowns, beating analysts' forecast of 5.88 billion, and the operating profit margin was 10.4%, down from 11.9% a year ago.

"The slightly better than expected margin delivery sends a positive signal to the market," said Alphavalue analyst Jie Zhang.

However, H&M flagged more discounting in the third quarter.

H&M is "monitoring" global trade developments, it said in the statement, and can adapt by changing its supply chain and its pricing.

Even as it reduces store numbers globally, H&M is also searching for growth in new markets with a growing middle class, with plans to open its first stores in Brazil in the second half, as well as in El Salvador and Venezuela, and to launch in Paraguay next year.

($1 = 9.4635 Swedish crowns)