H&M’s CEO resigned unexpectedly on Wednesday and business veteran Daniel Erver took over with immediate effect, as the Swedish apparel brand battles to increase sales and profitability.
Shares in the Swedish fashion store fell 8 per cent after outgoing CEO Helena Helmersson announced her decision to quit the firm after four years in charge, describing the post as “very demanding” and told media she lacked the stamina to continue.
The leadership shift occurred after H&M reported a 4 per cent drop in sales for December and January compared to the previous year, a gloomy indicator for the important Christmas shopping season.
H&M, the world’s second-largest publicly traded fashion store after Inditex, has struggled to compete with Zara and low-cost fast fashion behemoth Shein, both of whom have had excellent sales growth.
“I think the market will welcome the change after digesting the numbers,” said Adil Shah, portfolio manager at Storebrand in Oslo, which holds H&M shares.
“Speculation that margin targets will not be met is one of the reasons being stated for the CEO change,” he added.
H&M has focused on profitability rather than sales volumes recently as it aims to reach a 10% operating margin this year.
Erver, 42, has been at H&M for 18 years, most recently as head of the retailer’s core H&M brand, a role he will keep alongside the CEO job.”We think there’s a lot that needs to be done or could be done to turn around this business, and the question is whether or not a person who’s been there for 18 years is the right person, or even has the mandate to take those steps,” said Bernstein analyst William Woods.
H&M’s fourth-quarter operating profit margin fell to 7.2 per cent from 7.8 per cent in the third quarter. Having previously said its goal was 10 per cent, the company on Wednesday called it an “ambition”.
Measured in local currencies, sales from 1 December 1 to 29 January – the start of its fiscal first quarter – fell by 4 per cent, compared to an increase of 5 per cent in the same period last year. Sales over the fourth quarter had also fallen 4 per cent, more than the market expected.
Fourth-quarter operating profit was 4.33 billion crowns (USD 415.4 million), up from 821 million a year earlier but below the 4.57 billion expected by analysts in an LSEG poll.
JPMorgan analysts said the results were disappointing, and that the weakness of H&M’s fourth-quarter profit “slightly reduces (the) credibility” of the 10 per cent margin target.
Karl-Johan Persson, H&M chairman and grandson of the founder Erling Persson, said the company is in a strong position with “good conditions to make further improvements” this year.
