STOCKHOLM, Sweden — Sweden's H&M reported on Thursday lower fiscal first-quarter sales than expected, after warning last month that markdowns prompted by high inventories and imbalances in its clothing range would hit earnings at the start of the year.

The world's second-biggest fashion retailer said sales in the December-February period, including VAT, were unchanged in local currencies, below a mean Reuters poll forecast for an 1.2 percent increase.

Sales excluding VAT fell to 46.2 billion Swedish crowns (£4.04 billion) from 47.0 billion a year ago, versus expectations of 47.3 billion.

In the previous quarter, local-currency sales unexpectedly shrank for the first time in decades as the core H&M brand attracted fewer shoppers to its stores.

Having seen like-for-like sales slow and its shares tumble over the past couple of years, H&M at its first-ever capital markets day in February failed to convince investors it has a viable strategy to turn around a weak trend in its core brand.

Biggest rival Inditex, owner of Zara, on Wednesday posted a 7 percent profit rise in its fiscal year through January and said sales grew 9 percent in the first five weeks of its new financial year.

H&M is due to publish its full fiscal first-quarter earnings report on March 23.

By Helena Soderpalm; editors: Niklas Pollard and Gareth Jones.