Swedish fashion chain Hennes & Mauritz reported a bigger-than-expected 3 per cent drop in year-on-year sales at established stores in July.
The mean forecast in a Reuters poll of 10 analysts had been for like-for-like sales to drop 1 per cent.
Total sales were up 7 per cent, undershooting a forecast 9 per cent rise.
Weak consumer sentiment during the global downturn has hit retailers hard, but there have recently been some signs of improvement, with a return to economic growth in the second quarter for France, Germany and Japan, the last of which H&M entered last year.
"The figures were slightly disappointing," said Anne Critchlow, analyst at Societe Generale. "The German retail market hasn't been bad, so we were expecting a higher number."
Clothing sales in Germany, H&M's largest market, edged up 2 percent in July, according to industry journal Textilwirtschaft.
European Central Bank Governing Council member Axel Weber said on Sunday the German economy had bottomed out, but warned that the financial crisis may not be over yet.
H&M and Spanish Inditex, Europe's biggest clothing retailer, which owns the Zara chain, have so far weathered the downturn better than mid-market rivals such as Britain's Marks & Spencer and Next, helped by a focus on low-cost, fast-moving fashions, and geographic spread.
Shares in H&M were down 2.2 per cent at 405 Swedish crowns at 0900 GMT, underperforming a 1.4 percent fall in the DJ Stoxx European retail index.
"This is slightly worse than expected but no drama," said an analyst who declined to be named. "H&M is not as active as its competitors when it comes to markdowns, which is bad for like-for-like sales but good for margins."
He said shares may drop slightly on the news.
H&M only gives round numbers for monthly sales and does not give currency figures.
In June, like-for-like sales dropped 5 per cent while total sales were up 4 per cent.
Reuters