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H&M sales miss as retailer struggles to compete with Zara

FILE PHOTO: The H&M clothing store is seen in Times Square in Manhattan in New York

By Marie Mannes and Anna Ringstrom

STOCKHOLM (Reuters) - H&M reported on Thursday lower-than-expected quarterly sales as shoppers tighten their belts with energy and food bills soaring and the world's second-biggest fashion retailer struggles to compete with rival Zara.

Third-quarter net sales at the Swedish group were up 3% from a year earlier at 57.5 billion crowns ($5.4 billion), short of the 5% which analysts polled by Refinitiv had forecast for the June-August quarter.

"The third quarter got off to a weak start, in common with the industry in many of the group's major markets," H&M, which does the bulk of its business in Europe, said in a statement.

"Sales improved sequentially during the quarter, with a better start for the autumn collections than last year."

Measured in local currencies, sales were down 4%.

Shares in H&M, which have lost more than two-thirds of their value this year, were down 1.9% in early afternoon trade.

"As we saw from Primark last week, we think the more value conscious end of the sector is proving very challenging in Europe ex-UK, reflecting where pressures on household cashflow are most acute," RBC analysts said, noting German industry data showing falling store sales in the period.

They said in a note H&M's smaller chains like COS and Arket have been more resilient lately than the H&M brand.

The Swedish retailer has substantially underperformed market leader Inditex, the owner of Zara, which this week posted sales growth in constant currency terms of 16% for its May-July quarter. The Spanish group's growth pace however slowed to 11% in the Aug.1-Sept. 11 period.

Inditex on Wednesday flagged further price hikes this autumn to offset soaring costs, despite worries demand would wane due to the cost of living crisis.

H&M is due to publish its full third-quarter earnings report on Sept. 29.

GRAPHIC: Inditex shares have outperformed rivals: https://fingfx.thomsonreuters.com/gfx/mkt/gkplgnkjqvb/inditex.PNG

($1 = 10.7226 Swedish crowns)

(Reporting by Marie Mannes and Anna Ringstrom; editing by Stine Jacobsen, Jason Neely and Emelia Sithole-Matarise)