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H&M’s New CEO Takes Cue From Zara With Faster Fashion Strategy

A close-up shot of the H&M logo on a storefront.
Hennes & Mauritz AB posted better-than-expected profit in the first quarter as it cut costs and introduced new spring looks. (Shutterstock)

The new boss of Hennes & Mauritz AB said the fast-fashion chain is focused on driving profit and sales by getting the newest fashions into stores as quickly as possible.

Following the example set by its biggest rival, Inditex SA-owned Zara, the Swedish retailer is looking to move more of its production to places like Turkey and Mexico to bring it closer to key markets in Europe and the US, said Daniel Erver after H&M posted better-than-expected profit in the first quarter.

In his first update as CEO, Erver said producing more relevant clothing ranges and getting them into shops quickly will positively impact H&M’s bottom line due to fewer write downs related to unsold products — a problem that has long dogged H&M. The retailer is also continuing to cut overhead costs and is targeting an operating profit margin of 10 percent this fiscal year - from 6.2 percent last year.

“I think we are performing well on a gross margin level, and cost control is good, but we still need to see a sales improvement if we are to reach our margin target,” Erver said on a call.

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Still, first-quarter margins hit 3.9 percent more than doubling from the year before with the retailer recording an operating profit of 2.08 billion Swedish krona ($196 million). This beat consensus expectations and sent the shares surging as much as 14 percent, nearly erasing all of this year’s declines.

Quarterly revenue totalled 53.67 billion krona, which was also slightly ahead of analyst consensus. Erver attributed the slight pickup in sales to a successful spring collection. Inventories fell 7 percent in the period.

H&M’s improved work in managing its supply chain and costs and current second-quarter trading is “encouraging,” even though top-line growth remains somewhat weak, Barclays analyst Nicolas Champ said.

Growth is a key challenge going forward for Erver, who took over after Helena Helmersson left in a surprise move in January after only four years in the role. Zara, as well as new online challengers such as China’s Shein, outpace the fast-fashion chain in several markets.

H&M also continues to face criticism over the group’s fast-fashion business model and its environmental impact.

Some investors initially expressed skepticism about Erver’s nomination, with analysts questioning whether the 42-year-old, who started at H&M as a summer trainee in 2005, could summon the power needed to bring about changes at the firm.

By Jonas Ekblom

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