By Marie Mannes and Helen Reid
STOCKHOLM (Reuters) -H&M unexpectedly announced a change of leadership on Wednesday, with company veteran Daniel Ervér taking over as CEO from Helena Helmersson as the Swedish fashion retailer's performance continues to lag rivals such as Inditex (BME:ITX) and Shein.
Shares in H&M dropped 12% as the company revealed sales for December and January fell by 4% compared to the previous year, a bad sign for the key Christmas shopping period.
Helmersson, who quit after four years as CEO, said the role had been "very demanding" and she did not have the energy to continue.
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. In an interview with Reuters, the Swede said he had voiced his interest in the role in December and the board took the decision on Wednesday morning.
STRUGGLE TO LIFT SALES, PROFITABILITY
The world's second-biggest listed fashion retailer after Inditex, H&M has struggled to compete with Zara and online low-priced fast fashion giant Shein, both of which have seen stronger 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.
H&M has focused on profitability rather than sales volumes recently as it aims to reach a 10% operating margin this year, and cuts costs by closing stores and laying off staff.
"The 10% goal on profitability stays, we will work hard to make that goal happen," Erver told Reuters.
H&M's fourth-quarter operating profit margin fell to 7.2% from 7.8% in the third quarter.
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.
Inditex's operating margin was 20.3% over the nine-month period to end-October. Sales grew 11.1% over that same period.
H&M's fourth-quarter operating profit was 4.33 billion crowns ($415.4 million), up from 821 million a year earlier but below the 4.57 billion expected by analysts in an LSEG poll.
JPMorgan (NYSE:JPM) 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 founder Erling Persson, said the company is in a strong position with "good conditions to make further improvements" this year. The Persson family has a 51% stake in H&M.
The shares were down 12% by 1445 GMT, having gained about 29% over the last 12 months.
($1 = 10.4234 Swedish crowns)