H&M Hennes & Mauritz AB (HNNMY) shares fell to a four-year low Thursday after rising inventory levels offset stronger-than-expected quarterly earnings and the launch a new clothing line later this year amid an increasingly difficult environment for European retailers.

H&M said sales in the three months ending in February rose 7% to SEK54.369 million ($6.12 billion) with profits rising to SKE24.466 billion, the company said. The figures equate to a gross margin of 52.1%, well ahead of the 51.4% forecast by analysts. After tax profit was tabbed at SEK2.457 billion, H&M said, against a Street forecast of SEK 2.32 billion.

However, shares in group fell after analysts noted rising levels of inventories at the group and CFO Jyrki Tervonen warned of potential markdowns in April and May as a result. H&M was marked 4.6% lower at SEK226.2 by 11:00 in Stockholm, the lowest since July 2013 and extending their three month decline to more than 12%.

"To meet the rapid change that is going on in fashion retail we need to be even faster and more flexible in our work processes, for example as regards buying and allocation of our assortment," said CEO Karl-Johan Persson. "We are therefore investing significantly in our supply chain, such as in new logistics solutions with greater levels of automation, but also in optimising our lead times. In the changes we are making, advanced analytics will provide important support for decision making."

"In parallel with this intensified change work we are continuing with our omni-channel strategy, i.e. the integration of our stores with online sales in order to give customers a more seamless shopping experience," he added. "The optimisation of our store portfolio also continues, particularly in those markets that did not perform sufficiently well. Among other things, this includes closures, the addition of more store space and rebuilds. We are also in the process of developing a new and upgraded version of our H&M stores with a new visual look."

H&M said it will launch a new line of clothing, ARKET, in the autumn of this year, with the first store in London to be followed by outlets in Brussels, Copenhagen and Munich as well as online offerings in 18 European countries. 

"ARKET will offer a broad yet selected range of essentials for men, women and children, as well as a smaller, curated assortment for the home. The overall direction and focus is quality in simple, timeless and functional designs," the company said. "There will be products in a broad price range, however in a slightly higher price segment than H&M with emphasis on materials, function and fit."