H&M’s CEO unexpectedly quit on Wednesday and company veteran Daniel Ervér took over with immediate effect, as the Swedish fashion retailer struggles to boost sales and profitability.
Shares in the Swedish fashion retailer dropped 8% as outgoing CEO Helena Helmersson said she had decided to leave the company after four years in the top job, adding the role has been “very demanding” and telling journalists she did not have the energy to continue.
The leadership change came as H&M said sales for December and January fell by 4% compared to the previous year, a bad sign for the key Christmas shopping period.
The world’s second-biggest listed fashion retailer after Inditex, opens new tab, H&M has struggled to compete with Zara and low-priced fast fashion giant Shein, both of which have seen strong 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.
Ervér, 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% from 7.8% in the third quarter.
Having previously said its goal was 10%, the company on Wednesday called it an “ambition.”
Measured in local currencies, sales from Dec. 1 to Jan. 29 – the start of its fiscal first quarter – fell by 4%, compared to an increase of 5% in the same period last year. Sales over the fourth quarter had also fallen 4%, more than the market expected.
Fourth-quarter operating profit was $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% 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.
“The shares were down 8% at 154 Swedish krone (14.79 USD) by 0840 GMT having risen about 29% in the last 12 months.”
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