Hennes & Mauritz AB (HM-B.SK) Thursday said sales growth continued in February as the Swedish fashion retailer beat expectations by keeping prices low to attract cash-strapped European customers, despite higher cotton costs.

The fast-fashion retailer has fared relatively well throughout Europe's downturn as consumers trade down to cheaper clothes, and the region remains H&M's main market representing more than 80% of sales. And, while spending is expected to remain sluggish this year, H&M's decision to keep prices steady at the expense of margins is likely to see its market share increase as it expands its operations.

Societe Generale analyst Anne Critchlow said H&M has the strongest retail space expansion in the non-food retail sector, both in terms of percentage growth and absolute physical space, outperforming Spanish rival Inditex (ITX.MC).

H&M is also looking elsewhere to expand outside Europe, especially China, where it will open more stores this year than anywhere else as it pushes deeper into Asia to cash in on emerging market growth.

H&M's sales in stores open at least a year rose 2% in February, beating consensus estimates of a 1.6% drop and contributing to total first-quarter sales of 27.83 billion Swedish kronor ($4.05 billion) from SEK24.5 billion a year earlier. Analysts had expected sales of SEK27.2 billion in the three months to Feb. 29.

"H&M's strategy of keeping prices low is gaining momentum, and people are clearly shopping at H&M rather than at their competitors," Sydbank analyst Nicolaj Jeppesen said.

The Swedish retailer had 2,491 stores on Feb. 29, up from 2,212 stores a year earlier. Inditex had 5.402 stores as of October 31, the latest data available, after it added 358 stores in its third quarter.

H&M reports full first-quarter earnings March 29.

At 1246 GMT, H& M shares were up 1.7% at SEK248.00, valuing the company at SEK403.51 billion, making it Sweden's biggest listed company by some distance.

-By Jens Hansegard, Dow Jones Newswires; +46-8-5451-3095; jens.hansegard@dowjones.com