By Jens Hansegard

STOCKHOLM--Sweden's Hennes & Mauritz AB (HM-B.SK) said Thursday it has continued to increase its long-term investments since last year and that second-quarter profit rose 11% on higher sales.

"Among other things, these investments enable us to be a natural part of our customers' increasingly digital world, where the boundary between shopping online and in physical stores is becoming more and more seamless," Chief Executive Karl-Johan Persson said.

Aside from investing heavily in its online offering, H&M is also broadening its range with beauty products, which will be rolled out in 900 stores from July.

The Swedish company, known for its cheap and fashionable clothing, said it plans to continue its relentless double-digit store expansion this year, aiming to open about 400 new stores, mainly in the U.S. and China.

The Stockholm-based retailer said net profit increased to 6.45 billion Swedish kronor ($783.5 million) in the three months to May. 30, from SEK5.81 billion a year earlier.

Analysts had expected net profit of around SEK6.49 billion.

Sales in the quarter, excluding VAT, amounted to SEK45.87 billion, up from SEK37.83 billion last year.

The group's closely-watched gross margin slipped to 59.4% from 60.8%, mainly because of the stronger dollar. H&M sources most of its clothes in Asia where it pays in dollars.

Sales from June 1 to June 23 increased by 14% compared with last year.

-Write to Jens Hansegard at jens.hansegard@wsj.com

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