UPDATE 2-H&M delivers first annual profit rise since 2015, CEO to become chairman

Sweden's H&M said on Thursday its chief executive, one of its founding family members, was stepping down to replace his father as chairman, as the world's second-biggest fashion retailer races to keep pace with a fast-changing market.

The news came as H&M reported its first rise in annual profit since 2015 following heavy investments, and a rise in fiscal fourth-quarter pretax profit that beat market expectations. Its shares rose 9% in early trade. H&M veteran Helena Helmersson, currently a chief operating officer, succeeds Karl-Johan Persson as CEO on Thursday, the company said in a statement.

"It is a natural change, after 20 years as chairman, to hand over to Karl-Johan, who has been CEO for more than 10 years," Chairman Stefan Persson, son of the group's founder, said in a statement. "The timing is favorable for making this change now since we have gradually improved profits and have a strong position with many well-established brands, millions of customers worldwide and good financial strength," he added.

"We have long anticipated that Karl-Johan would eventually assume the position as chairman once turnaround had been achieved, and expect this will be clearly positively received by the market," analysts at Carnegie said in a note. "Still, we believe the effect had been even more positive if the company had recruited a strong external name. That said, we have a rather positive view of Helena Helmersson, from presentations made during her time as head of sustainability."

"I think it is a sensible succession. Karl-Johan is not going anywhere, in reality, he has just got a change of mandate, and Helena has been around for some time." "It strikes me as a similar move to that of Inditex with Carlos Crespo becoming CEO and Pablo (Isla) moving to the executive chairman role," said Santander analyst Rebecca McClellan.

Zara owner Inditex, a rival to H&M, announced its management change in May 2019. RBC analyst Richard Chamberlain said Helmersson was "well respected".

RECOVERY UNDERWAY Profit in September through November quarter was 5.40 billion crowns ($568.6 million), up from a year-ago 4.35 billion. Analysts had on average forecast a profit of 4.78 billion crowns, according to Refinitiv data.

In the full fiscal year, profit grew to 13.4 billion crowns from 12.7 billion as sales rose on the back of big investments in logistics, digital technology, new store concepts, and independent brands to meet changing shopping habits and tougher competition. "The ongoing transformation work has contributed to continued positive sales development with more full-price sales, lower markdowns and increased market share," H&M said.

"The composition and level of the stock-in-trade continue to improve, and we expect a decrease in markdowns again in the first quarter, for the sixth successive quarter," Karl-Johan Persson said. Over the past 12 months to Wednesday's close, H&M's shares had gained 37% on hopes that a recovery was taking hold after slowing footfall at its core H&M-branded stores caused years of sliding profits, mounting inventories, and shrinking market value.

The group reported in December that its fourth-quarter sales rose 5% in local currencies. It said on Thursday that its sales in December through Jan. 28 grew 5% in local currencies. While its quarterly gross margin narrowed to 54.0% from 54.2%, markdowns decreased for a fifth straight quarter, by 0.5 percentage points in relation to sales.

Meanwhile, inventories shrank by 6% adjusted for currency effects for a second straight quarter. The Swedish group, which is controlled by the Persson family, proposed an unchanged dividend.

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