By Marie Mannes and Anna Ringstrom

STOCKHOLM (Reuters) -H&M reported on Thursday lower-than-expected quarterly sales as shoppers tighten their belts with energy and food bills soaring and the world’s second-biggest fashion retailer struggles to compete with rival Zara.

Third-quarter net sales at the Swedish group were up 3% from a year earlier at 57.5 billion crowns ($5.4 billion), short of the 5% which analysts polled by Refinitiv had forecast for the June-August quarter.

“The third quarter got off to a weak start, in common with the industry in many of the group’s major markets,” H&M, which does the bulk of its business in Europe, said in a statement.

“Sales improved sequentially during the quarter, with a better start for the autumn collections than last year.”

Measured in local currencies, sales were down 4%.

“As we saw from Primark last week, we think the more value conscious end of the sector is proving very challenging in Europe ex-UK, reflecting where pressures on household cashflow are most acute,” RBC analysts said in a note, noting German industry data showing falling store sales in the period.

H&M’s performance substantially underperformed market leader Inditex (BME:), the owner of Zara, which this week posted sales growth in constant currency terms of 16% for its May-July quarter. The Spanish group’s growth pace however slowed to 11% in the Aug.1-Sept. 11 period.

Inditex on Wednesday flagged further price hikes this autumn to offset soaring costs, despite worries demand would wane due to the cost of living crisis.

Shares in H&M, which were down 36% year-to-date at Wednesday’s close, were roughly unchanged in early trade. Analysts said it was holding up due to the company’s comment that its autumn collections have been well received.

H&M is due to publish its full third-quarter earnings report on Sept. 29.

($1 = 10.7226 Swedish crowns)