June 9, 2006

H&M Madonna deal not seen having material effect

By Simon Johnson

STOCKHOLM (Reuters) - Swedish clothing giant H&M's deal to
dress pop diva Madonna on her current tour could help the
firm's image long-term, but is unlikely to materially affect
sales, analysts said on Friday.

H&M is to provide a complete off-stage wardrobe for
Madonna, famed for her risque stage outfits, and will also kit
out her band and dancers on the tour, which opened in May. The
group will sell a specially designed Madonna track suit from

Madonna is not the first celebrity linked with H&M, which
has brought in Stella McCartney and Karl Lagerfeld to design
one-off collections. But H&M last year canceled a campaign with
supermodel Kate Moss after she was filmed apparently snorting

"I have looked at the last two or three campaigns they have
organised, and as far as I can see they have had very little
impact," said Henrik Schultz, analyst at Danske Bank.

He said the deal would contribute to a "smartening up of
the brand" in the longer term, but that the effect would be
very hard to quantify.

"They are quite good at getting these celebrity deals in
place; it is a slight positive. Still, it does not take
attention away from the current bad sales figures," said
Christian Nagstrup at Jyske Bank.


"Overall, I am still negative on the company, although you
have to bear in mind that the valuation has improved in the
last few weeks," he added.

Anna-Karin Envall, analyst at Handelsbanken, was more
upbeat, saying the Madonna deal got H&M wide press coverage.

"We see it as strengthening the brand of H&M," she said.

H&M reported weaker-than-expected sales figures in
February, March and April, and its shares have slipped by
around 4 percent this year. Analysts said they were looking
forward to a weak second quarter when H&M posts its results on
June 21.

The weaker-than-expected sales have led H&M shares to
underperform the DJ Stoxx European retail index, which is up 3
percent so far this year.

"In the past few quarters, they have had quite high
inventories," said Nagstrup. "My fear is that maybe it (high
inventories) would add to their price reductions."

But Envall at Handelsbanken said strong clothing statistics
had come out of Germany and Sweden, meaning the worst might be
behind the company in terms of sales. The two countries account
for around 35 percent of H&M's sales, she added.

A report from the Swedish Trade Federation predicted a
strong retail performance in Sweden due to strong economic
growth and annual rebates from the tax office.

(Additional reporting by Patrick Lannin)