Hennes & Mauritz AB (search), Europe's largest fashion retailer, posted a higher than expected third-quarter net profit on Wednesday thanks to rising sales.

Earnings for the three months ending Aug. 31 were 2.16 billion kronor ($276 million), up 36 percent from 1.59 billion kronor a year ago.

Sales rose 18 percent to 15.16 billion kronor ($1.9 billion) from 12.84 billion kronor in the same period last year.

The results beat analysts' expectations, but the company warned of the potentially negative impact of the re-establishment of quotas on some Chinese imports (search), which account for about 30 percent of H&M's products.

H&M was among the companies to get stung this year when European Union (search) authorities declared that limits on Chinese imports had been reached, leaving hundreds of thousands of items stranded in warehouses and off retailers' shelves.

After several weeks of negotiations, trade officials reached an agreement with China but the episode has left retailers doubtful of the EU's commitment to permanently lifting quotas and looking for sourcing opportunities outside China.

H&M said all garments whose import had been blocked have now been delivered to stores.

Chief Financial Officer Leif Persson told Dow Jones newswires that the impact would be most significant in the first quarter of the 2006 fiscal year, which starts Dec. 1.

To mitigate the impact, Persson said the company will try to get better prices from suppliers other than China and to source more from outside the country. The company said it has already moved some of its production outside China.

Persson said, however, that H&M has no intention of pulling out of China.

Shares in H&M rose 1.3 percent to 273 kronor ($34.92) on the Stockholm exchange.

H&M said it expected to open about 70 stores and to close about 10 in the fourth quarter. Most of the stores will be opened in North America. It also said it is considering starting a mail order and online business in the Netherlands.