* H&M Q1 results due at 0700 GMT on March 26
* Pretax profit seen marginally higher amid tough market
* Analysts see pretax profit at 4.1 bln crowns, up 1 percent
STOCKHOLM, March 20 (Reuters) - Swedish fashion giant H&M is expected to deliver a small rise in first-quarter earnings next week even as retailers around the world struggle for survival as consumers put the brakes on spending.
H&M, the world's third-biggest clothing retailer has -- like Gap Inc and Inditex, which jostle for the top spot -- capitalised on its low-priced clothing line during the downturn as cash-strapped shoppers hunt for bargains.
Analysts, on average, see H&M posting December-February pretax profits of 4.1 billion Swedish crowns, up just over 1 percent year-on-year, according to a Reuters poll.
H&M, however, is feeling the bite from the crisis. It reported a one percent year-on-year fall in sales at established stores in January, after a 7 percent slide in December.
Analysts said on Friday retailers including H&M have suffered from an inventory overhang in the fourth quarter, since orders for winter collections were largely made before the financial crisis put any real squeeze on demand.
"We have seen a difficult quarter for H&M," said Soren Lontoft Hansen, equity analyst at Sydbank. "What we have seen is a more competitive environment in terms of prices." Analysts, however, expect excess inventories could come down in the coming months as retailers hold back orders.
Analysts forecast an 8.5 percent drop in H&M's like-for-like sales in February, which was a shorter month than a year ago, and a rise of 1.4 percent in total sales, which include newly opened stores.
One of the main worries for H&M is a stronger dollar, which squeezes the company's gross margin. H&M makes some two-thirds of its purchases in dollars.
Ohman Fondkommission said in a research note it expects a gross margin decline in the first quarter to 58.7 percent from 59.6 percent in the same quarter a year ago.
Analysts, however, believe Sweden's biggest company by market value has also taken advantage of the downturn to secure what would normally be expensive floor space in prime locations.
"H&M has been a lucky one," said Anne Critchlow, analyst at Societe Generale, which has a sell recommendation on the stock because of its high valuation.
"With a huge net cash position it can secure good property value. Other mature retailers are not expanding."
H&M plans to open some 225 stores in the new financial year.
Citigroup, which raised its recommendation on H&M to 'buy' this month, with a 400 crown target price, said the fashion firm remains one of the most efficient European retailers and boasts revenue trends that should exceed peers.
Arch rival Inditex, owner of slightly more upmarket fashion chain Zara, is expected to report its first yearly fall in net profit since its 2001 flotation next week as store openings failed to compensate for slowing same-store sales.
Italian clothing retailer Benetton Group SpA cut its dividend by 30 percent this week to save cash while three of Britain's biggest retailers are expected to report a fall in full-year profits net week.
Inditex is due to publish its full-year results on March 25 while Benetton Group issues its first-quarter report on May 11.
(Reporting by Mia Shanley; editing by Simon Jessop)