H&M reshuffles at the top as recovery accelerates

STOCKHOLM (Reuters) - Swedish fashion giant H&M HMb.ST appointed company veteran Helena Helmersson as chief executive on Thursday as it reported its first rise in annual profit since 2015 and pleased the market with unexpectedly strong fourth-quarter profit growth.

Helmersson, 46, has been with H&M for over two decades and has held positions from head of sustainability and global head of production to, most recently, chief operating officer.

She replaces the founder’s grandson Karl-Johan Persson, who moves to the chairman role.

Helmersson has been involved in setting strategy in recent years. “I want to continue with the plan that is already on the table, and then of course also keep a close eye on the world around us and tweak the plan as we go along,” she told Reuters.

Santander analyst Rebecca McClellan said the succession looked sensible. “Karl-Johan is not going anywhere, in reality he has just got a change of mandate, and Helena has been around for some time,” she said.

Karl-Johan will in May move into the role vacated by his father, 72-year-old Stefan Persson - the chairman for more than 20 years - marking a shift to a younger generation at the top of the company.

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Shares surged as much as 10% after the world’s no. 2 fashion retailer also beat earnings expectations for the fourth quarter.

H&M is recovering from years of sliding profits and mounting inventories due to slowing footfall at its core H&M-branded stores.

Profit in the September through November quarter was 5.40 billion crowns ($569 million), up from 4.35 billion a year before. Analysts had on average forecast a profit of 4.78 billion crowns, according to Refinitiv data.

Big investments in logistics, digital technology, new store concepts and independent brands to meet changing shopping habits and tougher competition helped push annual net sales 11% higher in Swedish crowns.

“The ongoing transformation work has contributed to continued positive sales development, with more full-price sales, lower markdowns and increased market share,” the company said in a statement.

Outgoing chairman Stefan Persson, who was CEO from 1982 to 1997, said in a rare interview that it was a good time to step down now that the company was in good condition.

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“The industry is struggling with huge problems, and I would say that we have now managed to transform, even though there are still many challenges ahead, in a way that has left us with our financial position more or less intact and able to weather also future challenges,” he told Reuters.

H&M said in its earnings report its financial position was strong. Its net debt to profit before depreciation and amortization ratio, which it has a target of keeping below 1.0, improved to 0.2 in the quarter.

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Stefan said he expected little change to strategy under the new regime.

“Helena has been with the company for a long time, and in such positions that there will not be any revolution as such. I not least feel confident that she really has placed the issue of sustainability on the map,” he said.

Helmersson, who will be H&M’s first female CEO, was the group’s head of sustainability at the time of the Rana Plaza disaster in Bangladesh that killed 1,135 garment workers.

The incident prompted massive soul-searching in the industry about factory safety.

H&M's biggest rival, market leader and Zara owner Inditex ITX.MC, also promoted its chief operating officer to chief executive last May.

Both chief executives have a strong sustainability remit, underlining how keen fashion companies are to prioritize their environmental strategies at a time of a public backlash against cheap, throwaway clothing.

“We want to keep growing, and that’s what we’ll do. But in future we won’t be able to use the natural resources that we depend on today, not in the same way,” Helmersson told Reuters.

The outbreak of the newly identified coronavirus in China had a negative impact on sales in that country at the end of January, outgoing CEO Persson said at a press conference to accompany the results in Stockholm on Thursday.

Reporting by Anna Ringstrom; Additional reporting by Colm Fulton, Johannes Hellstron and Johan Ahlander; Writing by Anna Ringstrom and Sonya Dowsett; Editing by Niklas Pollard and Jan Harvey