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Swedish fashion retailer Hennes & Mauritz, better known to shoppers as H&M, says it's increasing markdowns this quarter after accumulating a record pile of unsold garments worth more than $4 billion.

Operating profit fell 62 percent to the lowest level in more than a decade as clearance sales failed to reduce quantities of T-shirts and jeans that customers had passed over. The stock slumped to the lowest level since 2005.

"The worrying sign again comes from unabated piling-up of inventory," says Chris Chaviaras, an analyst at Bloomberg Intelligence.

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