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Hennes & Mauritz, the world's second largest fashion retailer, has decided to accelerate shop expansion despite weak European conditions that lowered its first quarter performance.

Europe is the firm's main market, where the persisting debt crisis and the struggling labour market have weighed on consumer confidence.

The company noted that unprecedented markdowns pushed the gross margins for the three months ending February 2013 to 55.2 percent from 55.8 percent in the previous year. This was below the 55.6 percent estimated by a Reuters poll.

Pre-tax profit amounted to 3.2bn crowns ($499.9m/£329m/€387m) as against the analysts' expectations of 3.3bn crowns.

"The first quarter has been characterised by the continued challenging situation for the fashion retail industry in many of our markets mainly due to a continued tough macro-economic climate, but also due to unfavourable weather during parts of the quarter," said Chief Executive Karl-Johan Persson.

"This meant that sales in the first quarter did not reach our expectations". The company had said earlier that like-for-like sales had fallen 3 percent between December and February.

H&M has also said that cold European and the US weather has hit sales in March, adding that share prices remained better-than-expected at the close of first quarter.

The Swedish firm, which is competing mainly with Inditex, is seeking to hasten its store expansion, with plans to open up to 350 outlets this year.

But the firm's bleak performance in the face of its rivals has come under criticism. In a bid to stand up to competition, H&M had invested in online retail and broadened to new chains such as "& Other Stories", where the company claims to have managed better-than-expected sales.

However, analysts point out that H&M's is posting a mixed performance.

"There is good reception of & Other Stories and an increased new store openings guidance ... it shows that H&M grows well in the longer term, and actually potentially has accelerated growth," Barclays analyst Christodoulos Chaviarras was quoted by Reuters.

"But on the other hand you have the warning on current trading given the unseasonal weather that is going to drag sentiment. So it seems like we're set for double-digit like-for-like (sales) declines in March."