Stockholm — Hennes & Mauritz (H&M) is reeling from discounts that are eroding sales as the struggling Swedish clothing retailer tries to reduce a record level of inventory. Sales were unchanged in local currencies, including VAT in the three months to the end of May, the Stockholm-based company said in a statement on Friday. Revenue excluding tax rose 1.2% to 51.9-billion kronor ($5.9bn), missing the average analyst estimate. The stock fell as much as 4.2% in early trading. "It’s worrying," said Magnus Raman, an analyst at Handelsbanken. He estimates like-for-like sales for the past 12 months have dropped 6.8%, making it harder to invest in improving the business. "The consensus estimate was already at very low levels and still the company doesn’t manage to meet them."

H&M has struggled to keep up with its competitors after fashion mistakes and delivery hiccups have made customers turn elsewhere. The company reported a record level of inventory exceeding $4bn at the end of the...

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