PARIS — H&M Group’s shares closed down more than 12 percent Wednesday following the announcement that chief executive officer Helena Helmersson is stepping down, effective immediately. She had been in the role since 2020.
Daniel Ervér will step into the CEO role while remaining in his current position as head of the group’s flagship brand H&M.
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The news of Ervér’s appointment did not instill confidence in investors, who billed the surprise executive switch as “continuity, rather than progress,” said Bernstein analyst Maria Meita in a note. “The share price performance was not helped by the fact that the new CEO is unknown.”
Ervér is hardly an unknown at the company, with 18 years of experience in roles covering buying in both men’s and women’s sectors and stints in the U.S., Germany and the head office in Stockholm. Meita framed his career as an “H&M lifer.”
“I believe our industry is filled with opportunities that our business idea to offer fashion quality at the best price in a sustainable way is more relevant than ever. And I see great opportunities ahead to continue to create profitable growth,” Ervér said in a call with investors following the announcement.
His words did not assure investors and shares continued to fall, dipping to a low of 14 percent following the call, before they recovered.
In her final presentation, Helmersson said the group’s cost cutting and focus on improving its profit margin has put the company on steadier ground, improving cash flow while snapping up its own stock in a massive buyback program.
In 2024, the group plans to reallocate stores, opening 100 new units in emerging markets and closing 160 in established markets that are underperforming or moving to online sales.
Eastern Europe, especially Poland, was one market cited as performing strongly, while India is in “double-digit growth,” Helmersson said. China is finally starting to rebound after weak sales and a slower than expected post-pandemic recovery.
The U.S. has been trending upward, but the company will look to strengthen H&M as a lifestyle brand and invest in its beauty and home sectors. It opened 46 H&M Home shops-in-shop over the last year. Helmersson held up its new New York flagship sort with an “elevation” in presentation and design as the model.
It’s also gearing up to open a new flagship in London’s hip Chelsea neighborhood, which will be experiential and focused on “fashion forward products with elevating styling.”
Head of investor relations Joseph Ahlberg said the company is keenly aware it needs to work on “brand perception” and that the marketing spend has shifted to building “a more robust platform.”
The brand is also trying to clean up its website, with what Helmersson framed as “more inspiration” focused on better styling, plus clearer fit guides to combat costly returns.
The move to upscale their offering while keeping prices the same — or lowering them, as Ahlberg teased — demonstrates that H&M is under pressure from both sides.
Spanish rival Zara has increased its play in the fashion niche with high-end designer partnerships and the upscaling of its offer since the arrival of Marta Ortega Pérez as non-executive chair of parent company Inditex.
Ultra-fast-fashion competitor Shein has been undercutting H&M on price as it readies for an IPO in the U.S.
On the geopolitical and safety disruptions in the Red Sea, Ahlberg said the company is working with shipping companies to control costs, despite the spike, and will look to “lower prices in a tactical way” in some categories if assortment is delayed.
The company will also “start to adjust some of the sourcing mix.” It has been nearshoring some of its production to Europe, as well as exploring Latin America as it expands operations there. But Ahlberg cautioned that the group does expect to see an impact from freight costs later in the year, though the company has not yet purchased its fall inventory so could see production locations shifting.
Helmersson had helmed the group through the pandemic and the Russian invasion of Ukraine, which resulted in the closure of stores there, which had previously been its sixth-largest market worth about $200 million in revenue.
Those closures in early 2023 proceeded successive quarters of flat sales.
The announcement of Helmersson’s departure came as H&M Group’s sales dipped down 1 percent in local currencies in the fourth quarter.
Sales over the busy holiday period did not bode well for any upcoming bounce back. In the period from Dec. 1 to Jan. 29, sales were down 4 percent in local currencies compared to the same period last year.
Sales in the three months from Sept. 1 to Nov. 30 totaled 62.65 billion Swedish kronor, or 5.55 billion euros at current exchange. That marked a 3 percent increase in Swedish kronor, compared to the same period last year.
The group, which has been intensifying its cost-cutting measures, reduced its inventory by 13 percent in the period.
While cutting costs, the company has increasingly focused on improving its operating margin, with a goal of 10 percent by the end of 2024. It moved closer to that goal, with an operating margin of 6.9 percent in the fourth quarter.
Operating profit was slightly lower than analysts’ expectations, at 4.33 billion Swedish kronor, or 384 million euros at current exchange. Analysts anticipated fourth-quarter operating profit to hit 4.7 billion Swedish kronor.
“Operating profit has been positively impacted by a stronger gross margin, the cost and efficiency program and good cost control,” Helmersson said.
Looking at the full-year results, sales were up 1 percent in local currencies to 236.03 billion Swedish kronor, or 20.92 billion euros. That marks an 6 percent increase in Swedish kronor. The currency lost seven percent of its value against the euro in 2023.
H&M Group, which also operates Arket, Cheap Monday, Cos, Monki, Weekday, & Other Stories and H&M Home, indicated that its portfolio brands were performing better than its flagship H&M label, noting that sales at other brands had increased by 9 percent in local currencies over the course of 2023.
“Our top priority is H&M, where our focus is on further enhancing the customer experience and the customer offering,” the company said in a statement. It is investing in AI and tech to “work on greater precision and shorter response times,” as well as omnichannel integration.
“H&M is very much in ‘trading sales for profits’ mode, which is leading to margin improvement, but some pressure on volumes. As such, we think it may have to reinvest sourcing gains at some point to drive volume as it appears to be losing some [like-for-like] share in major markets,” said RBC analyst Richard Chamberlain in a note.
The group has the “challenge of capturing more midmarket fashion spend without compromising the value for money perception of the H&M brand,” he added.
The CEO change and lackluster results come just days after news that H&M plans to close 28 stores, or one-fifth of its retail estate, in Spain and lay off nearly 590 workers.
“This involves securing the best locations that resonate with our customers, enhancing the shopping experience in our existing stores and actively seeking out new opportunities,” the company said in a statement confirming the closures.
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