Hennes & Mauritz (H&M) Aktie

A warm welcome to everyone. Today, we present the Second Quarter Results for 2026 for the H&M Group. My name is Joseph Ahlberg, and I'm Head of Investor Relations. Before I hand over to our CEO, Daniel Erver, let me briefly outline today's agenda. As per usual, Daniel will start by sharing a short summary of our results. Our CFO, Adam Karlsson, will then provide a more detailed financial review.

And after that, Daniel will walk you through selected highlights from the quarter and provide a brief outlook. We will end with a Q&A session, where Daniel, Adam and I will be available to answer your questions. And with that, please welcome Daniel.

Good morning, everyone, and a warm welcome to those of you who are joining us online, but also those who are joining us here in the room on this beautiful summer morning in Stockholm. Before we start, I just want to take the opportunity to recognize that I think all of us woke up this morning to the news from Venezuela, and we have spoken to our teams on site, and we are pleased to hear that no -- we had no casualties and no injuries, and we were able to evacuate our store on time. But beyond that, our thoughts are, of course, with the Venezuelan people at this point in time.

Shifting then the focus back to H&M and to the first half year. Our continued long-term work delivered a solid profit development through the first half year. And looking at the second quarter specifically, we can see that we delivered a 12% profit margin, excluding the onetime costs that we speak about in the report.

The improved profitability comes from improved gross margin. It comes from strong operational efficiency throughout the organization, and it comes through very solid cost control throughout our different markets around the globe. And we can see that the one-off costs that we speak about this morning, they are related to an organizational change.

And the purpose of the change is to make sure that we become more relevant for our customers by becoming close to our customers and move mandate and decision-making closer to our customers, so we take quicker decisions to become more relevant to the 81 different markets that we have across the globe. Looking at our operating margin on a 12-month rolling basis, it increased 2 percentage points and reached 8.5%, including the onetime costs for the last 12 months.

And while we are satisfied with the profitability, we are happy to see stock going down 10%. We are still not yet where we want to be when it comes to sales. Looking at the quarter, it came in fairly in line with last year's sales, and that's with 3% fewer stores and the 3% fewer stores is a result of the ongoing optimization of our store portfolio that continues.

Looking at the month of June, we estimate June to come in on par with last year. The sales performance in the quarter is a reflection of a number of different factors. The first being while we're very happy about the improved stock efficiency that we see, we can see and recognize that throughout our business, there are pockets across product types, price groups, markets where we came in slightly short on supply in relation to the demand that we could see.

Secondly, this quarter has been a difficult quarter for Western Europe. We could see a deterioration or lower consumer confidence across several of our key markets in Europe that affected sales. In Europe, we also are working on consolidating our logistics network, and that led to some disturbances and lower availability for our customers, especially in the month of May and June in Western Europe.

Thirdly, it's a quarter that's a weak quarter for Portfolio Brands, and that's related to -- mainly to 2 different things. The first one being that we closed all our Monki stores in 2025, and that still has an effect. And the second one being that Portfolio Brands had a big focus on full price sales in this quarter, which affected the top line performance.

And then we are happy to see that portfolio brands are back to growth in the month of June. With that first short summary, I will hand over to you, Adam, to go more into the details of the financial performance for the quarter.

Thank you very much, Daniel, and good morning, everyone. As Daniel highlighted, we have made progress in strengthening our profitability, but we have more to do when it comes to sales. Online sales, however, continue to grow, and we have come the furthest in that channel with the ambition to elevate the customer experience. The store channel saw a more varied development. We had around 3% fewer stores compared to last year as our optimization work across the portfolio continues.

We're also upgrading our existing store base, and we see sales uplift in the stores that we have touched so far. And this work, however, is still at an early stage. And in the second half year, we will broaden the rollout of a larger share of stores. Looking at the regions.

Sales in local currency sequentially increased or remained stable in Q2 versus Q1 in all regions except Western Europe. And we're happy to see that we're improving performance in both Southern Europe and in Asia.

The initiatives that we've taken so far to consolidate our supplier base and deepen our strategic partnership with our suppliers continue to support gross margin. And gross margin increased by 120 basis points to 56.6% compared to 55.4% in Q2 last year.

External factors affecting the gross margin remained somewhat positive and costs for markdown were in line with previous years. Looking at the rolling 12 months, we now are at a gross margin of 54.1%, which means that we're also in the range of what we have called a more normalized gross margin of 54% to 55%. And this is an important building block to reach our long-term ambition and target to have a double-digit EBIT margin.

Cost control remains an important focus area, and we have delivered good productivity improvements throughout the quarter. Including the one-off cost, selling and administrative costs grew by 1% in local currencies compared to the same quarter last year, excluding the one-off cost of SEK 679 million that we've taken in the quarter, and that is, as Daniel said, related to organizational changes, the cost base decreased by 2% in local currencies.

This decrease is mainly the result of lower selling expenses, supported by logistic efficiencies, optimization of our store portfolio and a more efficient use of our marketing resources. Taken together, this drove a significant improvement in our operating profit in the quarter and excluding the one-offs, the margin for Q2 was 12% compared to 10.4% in the second quarter of 2025.

Looking at the rolling 12 months and including one-offs, the operating margin increased to 8.5%, up from 6.5%. And during the quarter then excluding the one-off, it reached 8.8% over the past 12 months. If we take a look at the inventory, the stock in trade is now at 15.8% of sales versus 16.6% in the same time last year.

The inventory composition is considered to be good going into Q3, while we then continue to improve precision, demand planning, buying and stock management. So let's take a step back and look at the structural journey that we've done over the last years. As you can see in these 2 graphs, it's clear that through focused execution, we have strengthened both our profitability and our operational foundation.

This improvement is demonstrated in gross margin and inventory levels here to the left and in the operating margin to the right. And this progress enables us to continue to strengthen our customer offer and become faster and more customer focused.

We can also see that key value drivers such as return on capital employed and earnings per share are building a clear momentum. Over the past 3 years, the rolling 12 months return on capital employed has increased by over 11 percentage points to 17.4%, and the EPS has increased more than 260% over the same period. In addition to the improved profitability, they also demonstrate a stronger capital efficiency and a more disciplined execution across the business, again, highlighting the stronger operating model that we have today.

As these improvements continue, they increasingly underpin our ability to create sustainable value over time. Turning then to our financial position. Leverage remains inside the net debt-to-EBITDA target of 1 to 2x.

Cash conversion is strong and helped by good progress in active working capital management. We have a high degree of financial flexibility and liquidity buffer to secure that we can navigate volatility and to capture future opportunities. In the second quarter, we completed a share buyback program of 1.4 million shares worth around SEK 220 million for this year's long-term incentive program.

And in line then with our financial policy, we continue to return capital to shareholders through dividends and with the first installment paid out now in May and the remaining part to be paid out in November. So with that said, I'll hand back to you, Daniel, to take us forward.

Thank you. So as Adam spoke about, during the quarter, we continued to strengthen and build a more solid foundation for the H&M Group to build more resilience, but also strengthen the way we show up in the eyes of the customer.

And in the quarter, as we mentioned, we strengthened our organizational setup by removing the previous regional layer in our sales markets and also removing the online sales organization. And the purpose for this is to move decision-making much closer to the customer to become more relevant in each market, but also pick up speed in how we improve the customer offer.

This change also means that we are strengthening the representation of sales markets in the global leadership team as well. For the second half of the year, we are starting an upgrade of our digital infrastructure, and this is an important step for us to become more data-driven and help us to take better decisions in how we build up our customer offering and how we build our experiences. It's also important for us because it helps us to improve the position in how we match supply to the demand that we see out in the market. So these changes combined creates a better preconditions for our teams to create a stronger customer offer with outstanding products, inspiring experiences and strong brands. We have talked previously about the upgrade we made to the online store, where we have upgraded navigation, product presentation and improved inspiration for our customers.

And we are happy to see that in the second quarter, the online channel continues to develop really well. -- but to further leverage our strength of having a seamless customer journey across our channels and for the customer to move freely between our different sales channels, we still have more work to do on our physical store network of 4,000 stores across our 81 different markets.

And looking at the flagship share of our store portfolio, we have come a good way. And the latest and one of the greatest examples is the opening of Hamngatan here in Stockholm in April. We have also continued our expansion into growth markets, mainly in Latin America.

And one highlight was a very successful opening with the first store in Rio de Janeiro also in April this year. We have then started to improve a larger part of our portfolio by making improvements into layout to product presentation and giving better tech tools to our staff in store to better serve our customers. And as Adam mentioned, this is a work that we have started, and it's a work that we expect to reach a broader part of the portfolio moving into the second half of this year.

During the quarter, we also continued to build excitement around our brands. And we have done that by tapping into cultural moments, but also partnering with exciting creators. And one collaboration that I really want to highlight is the collaboration and the partnership we did with Stella McCartney.

It's a collection that was really well received by our customers at large, but it was especially well received by our young customer base, which we're really happy about. It's a collection that combines fantastic outstanding products with exciting sustainable innovations.

And we were happy to see Taylor Swift wearing one of the key pieces at an NBA game earlier this spring. Another collaboration that is very different in form and shape, but also very important for our young customer base was the beauty collaboration we did with the Swedish candy brand, Bubs, where we tapped into Swedish candy culture to build an exciting beauty experience, and that was exceptionally well received by also our young customer base, which we were happy to see. And lastly, we were proud to see our new friend from our opening in Brazil, the music phenomenon, Anitta, who was performing at the World Cup opening in L.A. in a custom-made H&M outfit just a few weeks ago.

We have a few more highlights from this quarter that we would like to share with you in this short film. So please...

So let's look a bit forward then. The financial outlook for the year remains, and we would like, though, to highlight a couple of things. For the third quarter, we estimate the overall effects of external factors impacting the gross margin to be neutral compared to the same period last year with a continued tailwind from transactional currency effects given the weakened dollar, but with the cost for tariffs still being the main headwind.

Sequentially, we expect higher costs for freight, mainly related to elevated spot prices for air freight and fuel surcharges. We are now within the normalized gross margin range of 54% to 55%, and we'll continue to invest the right quality in the right season buying and competitive pricing to ensure that we have a fantastic offer combined with strong cost control.

When it comes to markdowns, we expect the cost of price reductions as a share of sales to be on similar levels as the third quarter last year. On the SG&A, as previously communicated, we have the ambition to grow SG&A at a low single-digit level in local currencies for the full year.

And the implementation of new tech infrastructure that Daniel spoke about will result in a somewhat increased cost pressure throughout the second half of the year. And focus remains on enabling a continued good cost control throughout then and a disciplined allocation of resources to high business impact areas such as the continuation of store portfolio upgrades and the optimization of our warehousing network. The one-offs that we've taken in the quarter are related to driving higher sales through stronger execution, but will also result in cost savings that are included in the full year guidance for the SG&A. So with that, I'll hand back to you, Daniel.

Thank you. So looking ahead, our priorities remain clear. We are really proud about the improvements we made in profitability and the improvement in stock levels, and that gives us a strong foundation to continue to accelerate and build a stronger H&M. We have simplified the organization and strengthened the organization. We have invested in flexibility and speed in our supply chain, and we are embarking on upgrading our digital infrastructure.

And this combined strengthens our foundation even further. That puts us in a position to accelerate execution and do what truly matters the most for our customers, meaning exceptional products with outstanding value for money, building inviting and exciting experiences and continue to build strong brands.

And with that, we are confident in our ability to continue to drive profitable, sustainable growth over time. Thank you so much for listening. And then I'll hand over to you, Joseph, to move into the Q&A.

Thank you, Daniel. We will now start our Q&A. We will begin with questions from the participants in this room and then open up for questions from the telephone participants.[Operator Instructions] First question is from Andreas.

Andreas Lundberg with SEB. Starting with the operational model you talked about, and if you could include or weigh that into the maybe somewhat too low inventory in certain places, how that works together?

And where are you in your, call it, offensive moves? Or when can you push the trigger for better availability then or more products to sell given demand?

So we see that over the last quarters, we have made significant steps in reducing the stock in relation to sales. And we've now come to a point where we put high pressure on the allocation systems and on the precision of our systems to be really precise to make sure that we don't create supply gaps to the demand.

And that's why we're talking about further strengthening the digital infrastructure and further strengthening the logistics -- consolidating the logistics network to create the preconditions for further continue the journey towards our 12% to 14% target for stock in relation to sales. And now we are at a point where we need more structural changes to make sure that we don't create supply gaps in the way we have seen in this quarter.

But where are you in -- can you push harder now? Or you still have things to do before you can...

We think we are happy with the progress we made on the -- when it comes to stock in relation to sales. We don't see that, that will make -- take major steps in the -- we will continue to work on reducing stock in relation to sales, but not at the same pace. And to continue that journey, we will also -- the pace will be slower because we will need to do further moves in -- when it comes to supply chain and tech infrastructure to be able to do it without creating supply gaps.

Was that 1 or 2 questions? Can I take one more? On the gross margin range, you talked about 54%, 55%. You reached that now. Given that you now will maybe put more focus on the customer in various ways, how comfortable are you that you can stay at this 54% plus gross margin level?

The ambition is clear, but as we call out and we always sort of phrase the conditions for the gross margin in terms of the external factors. And they are, of course, very volatile.

And we see a situation now with cotton prices having spiked in the last couple of months now coming down again. So of course, given that uncertainty, we are committed to stay in the range, but continue to reinvest the further improvements we can see now in our supply chain and the operational efficiency that we are building together with the partners to maintain in that range, whilst then ensuring that we invest towards the customers.

So given sort of the -- if we take the external factors, uncertainty aside, we feel comfortable that we are now close to the range where we can operate more long term. But it will call for, of course, continued work in the supply chain and moving the sourcing excellence program even further down in the tiers, so -- so committed to the target, but uncertainty around the macro factors right now.

Niklas?

Niklas from DNB Carnegie. Can I ask about one-off costs? You talked about SEK 679 million in restructuring costs. But you also mentioned SEK 565 million in change of management in Portfolio Brands, tech and logistics. Is this also a one-off cost? And why is it not mentioned? And can you just elaborate a little bit about the difference between these 2 items?

But we try to be clear distinguishing what are, as Daniel said, rebuilding the operative model while removing layers. And that's a big thing that we don't foresee that will come again.

The other part of this sort of one-off or the extra charges we put on the quarter are more normal sort of changes that we do every day, not to say, but more frequently reoccurring.

So that's why we distinguish between these 2. But then the nature of them summing up quite a lot of small parts became quite big. And we also then -- as some of the effects will come later, we needed to do a provision for it.

So that's why they are included in the totality. But in nature, they are somewhat different given that we do a more long-term change connected to the regional layer removal that we won't expect to happen again, so to say.

Okay. And can I also ask about the OpEx guidance for the full year? Because now you had OpEx down in Q1 and adjusting for one-off costs, it was down even more in Q2, and you're talking about cost reductions now related to the layoffs, et cetera.

And still, you're guiding for increased OpEx for the full year. So are we looking at basically underlying OpEx increase exceeding the 2% to 3% -- 2% or so in OpEx decrease in the first half?

We are as well as within the gross margin committed to sort of manage our operations very, very effectively. But we also call out that we will start to do investments and particularly then in the tech landscape that will be tilted towards the second half of the year.

So it is our sort of best effort to estimate the sum of those effects, the continued ambition to keep a well-functioning, efficient operating model and combining it with a more forward-leaning investments that partly will be hitting the result rather than just being put on the balance sheet. So there's no change of ambition, but it's just the mechanics of how the year will look.

And just a quick additional one. On the gross margin, you're talking about external factors being neutral in Q3. with what you're seeing now and you talked about the cotton price, for instance, are you seeing an increase in external factors from Q4 and onwards the way things look now? Or is it fairly neutral going forward?

There are, of course, a couple of factors. We think that the -- or we can only speculate, but it looks like the currency effect will taper off. So we will not have that big movements in the U.S. dollar weakening.

And for the last couple of months, there has been uncertainty about raw materials. It started with, of course, the materials based on petrol, but then cotton followed. We don't see any major sort of reasons for cotton supply having gone down reasoning sort of meaning that the prices will go up, but it's just an effect of the total market -- now we can see over the last couple of weeks that it's coming down, and that's hopefully one of the positive aspects of the tension in the Middle East coming down.

So we see that currency effect potential will ease out and hopefully, also the sort of fairly temporary spike in material prices will not be significant. But there is some upward pressure, I would say, ahead of 2027.

Daniel Schmidt from Danske. I was just thinking when you talk about sort of the lack of inventory affecting sales, you mentioned this now a couple of quarters, and I hear you in terms of what's needed basically. But wasn't supposed to be sort of the proximity sourcing, getting close to your main markets compensate for that? -- wasn't that sort of the reason partly why you're moving production or sourcing closer to your main markets?

Absolutely. And that is helping us to quicker close the gaps and quickly react when we see a demand that sort of exceeds the supply that we have seen. So we are able to react quicker. At the same time, we have set high ambitions for creating more and better stock efficiency to make sure we always have the latest, most current fashion.

And it's balancing the capabilities with the speed of the improvement where I would say we wouldn't have been able to be at this level of stock efficiency and sales if we wouldn't have had the proximity sourcing in place. That means that there's still work to do. We are still putting a lot of efforts to accelerate the share that we source with much shorter lead times to further enable us to continue the move towards the 12% to 14% range that we're still aiming for.

Okay. Good. And then we've talked from time to time about the momentum that you built in womenswear. You said that it was stalling maybe a bit in the past couple of quarters. What's the development recently?

When looking at sales across the board, we are not satisfied. We see that we would have -- we want to -- we had plans for having stronger sales in this quarter than what we could see. And that -- we see different performance between the customer group, but none of them is able to drive strong enough to compensate and drive the total level where we want to be. So that includes womenswear.

We see -- we are happy with the way we work with more flexibility with better trend detection, but also womenswear we were affected of some of the supply gaps that we could see between the markets. So it's an issue that we see across the board.

Is that the main reason why you're seeing sort of momentum fading a bit in womenswear, you think?

It goes back to the reasons that we spoke about. One is the supply piece where we have across -- if you look at product types, but also when you look at certain markets and how we distribute the stock between the markets that did not fully match the demand that we could see in the market, that is definitely affecting womenswear. But also womenswear is an important customer group for us in Western Europe. And in Western Europe, we have the effects of a very weak consumer sentiment.

We can see, for example, the U.K. being a market that's been difficult this quarter. We see a weak consumer sentiment in Germany, even though in Germany, we believe we gained market share, but it is a weak market and that affects womenswear as well.

And then the supply issues related to the logistic network for Western Europe, of course, also affected womenswear given that they have a significant part of our sales share in Western Europe.

Fredrik Ivarsson On, ABG. Question on the store optimization program, obviously weighed a little bit in Q1 and also in Q2. And I think you guided for the full year slightly positive, if I recall correctly. Is that still a relevant guidance?

Yes.

Okay. Good. And then just a clarification on the OpEx guidance, is that including or excluding the one-off costs?

It is including the one-off costs.

[Foreign Language]

The question and the answer for the English-speaking audience. The question was connected to an announcement of an organization change in Stockholm, and Daniel was confirming that it was related to the changes we have been making connected to and presented under the one-off cost umbrella. Next question in English, please.

What type of employees is it that's being affected on this?

So this is not affecting our store colleagues. This is colleagues working in our offices that works in our sales organization. So this is removing layers between the store manager and me as a CEO to create a flatter organization with more decision mandates to our local sales organizations to speed up the pace of execution of our offering. So it's not store colleagues, it's office colleagues.

Thank you. With no further questions from the room at this point in time, let's invite questions from the telephone participants.

[Operator Instructions] your first question from the phone lines today comes from Monique Pollard from Citi.

The first question I had was just on the work that you've been doing on the store estate. So I just wondered if you could give us some sense of the extent of the uplift you're seeing in your store sales densities for the stores that you've touched so far in the program.

And then if you could give us some sense of what proportion of your store estate you expect to touch in the second half where you say it's going to sort of step up and also into 2027?

I can start that. We do a number of things. We both, of course, open new stores and close other stores to get sort of a shift from locations that we believe maybe have served their purpose in the back, so to say, and strengthen the overall portfolio of our store estate. The second thing we do is that we rebuild store, and that's quite a tedious and costly process so that we also do step by step.

But what we're speaking about here is a more sort of agile and fast-moving improvement program where we touch layouts, we touch the digitalization that Daniel was speaking about regarding ensuring that we have full visibility in RFID technology in our stores to ensure availability and productivity -- and that we see benefits these stores quite a bit.

And we have now, over the last year or so, probably touched around 15% to 20% of our store estate with positive momentum, both in availability, but also that the sort of the store setup is more structured in a way that it supports what Daniel also focuses on mentioning here that we can cater to the demand of the catchment where the stores sit.

So we have adjusted also sizing of concepts during this process. So that means that the outcome is not equal in all stores, but that's sort of the general foundations of what we now try to scale further throughout the autumn here.

And we see especially good results when we're able to extend the assortment offering. So when we're adding in H&M Move, which is our sportswear offering, for example, when we add in beauty through perfumes as a destination, we see those changes having the best, most positive effect on performance.

Understood. And then the second question I had was just on the restructuring. So I understand that the restructuring is about removing some of those regional structure, is putting in some of those regional structures for your sales staff and removing that layer of HQ staff in the sales organization.

Can you give us some sense of the sort of SEK actual benefit that you'll see to the P&L from these actions? Or is it more about improving the sales performance? And when should we start to see that benefit either from a cost-out perspective or from a sales perspective?

The main reason for doing the change is to speed up decision-making and create more relevance for our customers. We are present across 81 different markets where customers have different needs based on calendar, weather, cultural aspects.

And the closer we put decision-making to the reality of our customers, we believe the more relevant and the better we will become for our customers. And that's the main reason. And over time, that should, of course, result in a more relevant customer offer that should drive profitable sales growth over time. So that's the main reason. But then there is, of course, a cost effect to it as well.

Yes. I mean if we look at historically, when we've done these things, we did in previous year, a cost and efficiency program where we then called out that it would cost around SEK 800 million, and we expected savings around SEK 2 billion. And of those savings, about half of it was related to organization and staffing. So I think that's a fairly good proxy of how we expect the costs to come down related to the provision we make here. And the implementation will be gradual over time. Some markets can do this for, sort of, legal reasons quicker and some will take more time, but there will be an implementation starting now and then ending up early next year. So that's when we can start to see the benefits.

Your next question today comes from the line of William Woods from Bernstein.

So you've done great work on the supply chain over the last 4 quarters. I suppose when you look over the next 6 to 12 months, most of that supply chain work, I think you said is comped out now. What do you think is the next kind of one big strategic priority? I know you've mentioned a lot of things, but what is the key thing that's either going to get sales going or drive margins up in the next 6 to 12 months?

When it comes to the strategic priorities for the business and what we need to accelerate to show up in an even stronger way for our customer, it is really related to first, using the strength of the flexibility and the speed in the supply chain, but also the tech investments and developments that we are doing, combined with the investments we've made in a stronger, more creative organization with even stronger talents to create outstanding products that we deliver at the right time with no supply gaps. That's the first priority.

And then the second one is we have a huge strength of having a store portfolio network of 4,000 stores, but we recognize that there is more work that needs to be done on the store portfolio to show up in a way that truly inspire and excites the customer and make them convert and come back to us. And those 2 are the 2 key strategic priorities for the coming future, combined with all the other things, what we mentioned. But if I should call out 2, those are the 2, the most important.

Your next question comes from the line of Warwick Okines from BNP Paribas.

First question is just to come back on the store refurbishments. I didn't catch how many stores you plan to touch in the second half of the year. Perhaps you could just clarify that for me, please.

We believe that we will have touched by the end of this year around 1/4 of the stores. So that is sort of the ambition we have set. And that is then the increased pace compared to the normal rebuild cycle that we have had previously. So that is then a more effective way. And hopefully, it will continue to generate the benefits that we have started to see, even though it's early stages connected to availability and an improved customer experience based on the store configuration being improved and enhanced with the concept changes and upgrades.

And my second question is just around product. I think in the sort of early stages of the turnaround plan, you talked a lot about product. Now it seems to be more about efficiencies and technology to enable the consumer to sort of access the product in a more relevant way. But perhaps you could just talk a little bit more about the different product categories where you're happy, where you're less happy with the development across women's, men's and kids. Just a bit more color would be helpful.

As I said previously, product remains the most important focus. We see that that's the reason why customers come to us, why they come back to us, why they speak positively about us. So strengthening the product offering is the most important work that we do. And there are components that are more structural and technical when it comes to investing in stronger data models, better insights, applying AI, using AI for trend detection, for design enhancement of our design colleagues. There is a wide range of things that we can do. And then we are also investing in the best creative talents and people with impeccably good taste to be the creators and the developers of the assortment, and both go hand-in-hand.

And we see that, that work is happening across all our customer groups at the moment. And then we are happy to see that when we act with more flexibility with taking later decisions, we take better decisions and deliver more relevant assortment. The reason why we talk a lot about the supply in this quarter is that we call that out as one of the reasons where we -- why we did not reach the ambition for sales that we have set on ourselves for this quarter. But product do remains the most important piece of the work that we do.

Our next question today comes from the line of Anne Critchlow from Berenberg.

I've got 2, please. The first is on the sourcing and gross margin. I'm just wondering when the spike in materials prices will really affect the gross margin, whether it will be Q4 this year and then perhaps into H1 next year before easing back? And then secondly, I just wondered if you could comment on the outlook for marketing costs in the second half compared to last year. And also more broadly, just how you're thinking about marketing in terms of cost of sales for the future?

Well, on the first question, we normally estimate that it's a 6- to 8-month lag between how, sort of, fiber and raw material prices affect our gross margin. So that is sort of a proxy then. So we don't foresee so much impact during the autumn, but it's more, as I said before, than a -- something we keep under close scrutiny ahead of the spring. On the marketing side, we believe, and it's then also captured in our SG&A guidance, that we will remain on a fairly similar levels, but we will take with us the learnings we've had, how we increase the productivity of the marketing resources we put in.

And it's how we use different channels, how we optimize the content per channel and how we then distribute efforts connected to marketing between markets as well. So that work continues, but we foresee marketing, sort of, resources to be at the similar level compared to last year. But of course, the efficiency that we see and that we're striving for in optimizing with the use of technology, data, insights will hopefully make us even more effective going forward. So we strive for that balance to disconnect the levels of resource needed with the effect gotten, so to say. So that is a continued effort.

Our next question today comes from the line of James Grzinic from Jefferies.

You'll be happy to know I'll spare you my Swedish.

I just wanted to clarify, can you -- perhaps you talked to availability issues and challenges in May and June and the impact on top line. Can you perhaps clarify what a clean number would have been both in terms of the June flat number? I presume that against that, there's been also a calendar switch. Just trying to get a little bit more of a sense of what that flat fiscal Q2 and flat June would have looked like if we adjust for those couple of dynamics, please.

James, this is Joseph. So we do not provide a clean number for this, but we -- what we try to do is to highlight the key reasons why we saw an outcome slightly below what we planned for in these 2 selling periods that we have been discussing today, Q2 and the start of June. So no adjusted figure to provide.

So Joseph, just to confirm, both the fiscal Q2 and the current trading would have been better adjusted for both availability issues and calendar swings?

Yes, like Daniel pointed out before, the logistics disturbances or challenges that we had impacted us in both May and have also impacted during the start of June. So that impact is there. Also the pattern with Western Europe markets being -- seeing quite subdued demand. That was the situation both in Q2, but also the pattern seen so far in June.

Your next question comes from the line of Matthew Clements from Barclays.

A couple of questions on market share trends, if I can. The Southern Europe demand seems to have been robust, I think, across the industry. But are there markets in Southern Europe where you're winning share? The second market share question would be about, I guess, the U.S. You said, I think U.S. demand had surprised you positively in recent quarters to the extent that actually the market was underserved with stock. How has U.S. demand evolved into the second quarter? And then third on market share. Western Europe, I mean you said you're gaining in Germany. You called out U.K. as weak. Are there markets in Western Europe where you're gaining share even if the market is stepping backwards?

I can start. No, but if we unpack it and look at just the external data, we can see that Southern Europe has shown resilience over the last couple of months, and that has not been the case in Central and Western Europe. And those are then combined in how we report Western Europe here with U.K. and Germany, as we call out. What we are happy to see, though, that we are a strong player in Germany, and our offering has been well received. So despite then a consumer not fully having the spending power as previously, we have been able to take market share. I think in Southern Europe and especially the markets closest to the Mediterranean, it's more evenly on par here. We see a more resilient customer, and we've been able to perform well.

And lastly, on the U.S., we see and we called it out before then, that we have seen a sequential strengthening. It was not strong in second quarter, but it's a step in the right direction. And we believe it's attributed both to, of course, our offering, but also the supply of garments that we set us up a little bit too prudently over the sort of end of last year and into this year affecting Q1 sales in the U.S. So we see that trend is there in the right direction, but the level is not fully at the level where we want it to be.

If I could just ask one extra question, if that's okay. Obviously, you're pointing to improvements in profitability, inventory productivity as well and returns on capital employed. But I think CapEx is obviously guided to be down year-on-year. Are there areas now you feel that you could, given the strength of the -- or the improvements in the kind of underlying business efficiency, areas of investment you could materially accelerate?

I can start and then please fill in. So there are a number of areas where we want to pick up the pace and where we see that the profitability and the solid financial ground will help us and enable us. One is related, of course, to the customer offer, where we always want to make sure we have the outstanding and best value for money and that we always look at sort of where do we need to invest to become more competitive? Where do we need to invest to strengthen quality to really make sure that we show up with an unbeatable value for money for our customers? So that is something that we're assessing while monitoring, of course, the external effects on the material prices and so on. So that's one area we're looking at.

Another one is, as Adam mentioned, is the investment in the digital infrastructure. Part of that is CapEx, part of it is OpEx, given the nature of the expenses, but that's something that we will lean heavily into for the second half year with the upgrade of our digital infrastructure. And then the key piece of our CapEx has been and will be going forward, how we invest into the physical store portfolio.

And the more strong cases we find of really elevating the experience that resonates well with the customer, the more we will lean into it. But that is, as Adam mentioned, sometimes it's the full rebuild like we have done with the big part of our flagship portfolio. And then it's also looking at the more cost efficient, more -- less capital-intense way of doing agile optimizations with -- towards what really, really matters for the customer in that specific location. So that's how we're looking at it.

And perhaps a technical add-on is that when it comes to the tech investments, it do not all come as CapEx. We are also booking some of these tech infrastructure improvements on the OpEx line.

The next question today comes from the line of Adam Cochrane from Deutsche Bank.

First question is on markdown. And previously, you talked about you're having -- you were having to increase the level of promotional intensity in order to get customers to shop. That may be a customer attitude that was prevalent. Is that something that you're still seeing? And I think -- are you managing your markdown more tightly? Or is there a chance that you might need to increase the markdown in order to get maybe particularly in Western Europe, customers shopping again if they are remaining in a sort of promotional mindset? So has that really changed over the last couple of months?

I think the situation is fairly similar to how we described it in the last couple of months. This improved stock efficiency helps us to use -- spend less markdowns on stock cleaning, given that we have a better sell-through before stock cleaning. And then the markdowns we do use, we see that they are more towards triggering the more price-sensitive segment of the market. And given the lower consumer confidence in some of our key markets, we do see that in certain part of the customer base, we have needed to activate with more intense markdowns for the most price-sensitive segments of the market.

So -- and here, we see -- as we see in many external reports, of course, that several of our key markets, we see certain customer groups increasing and staying very, very resilient and certain customer groups having a really, really tight wallet after several years of inflation. So the way you describe it is relevant for how it's been and also how we look at the last few months, there's not a major change.

So as a company, are you sitting there trying to increase your full price sell-through in your stores and online? Does it take the customer some time to, I want to use the phrase, get used to the fact or more likely to buy H&M products on full price? They go into a nice store and see nice products. Do you reckon there's a lag between you moving in that direction and customers responding to it, which may take a little while of them getting used to it?

We see that when we get everything together, an exciting experience, package and strong communication with and then most importantly, really on-trend relevant garments, there is a very high appetite for full price sell-through from the customer base. Then we do recognize we are across 4,000 stores and all different demographies. And we have seen many customers getting a lot of pressure on their disposable income through inflation.

And of course, it's not always a question of full price or not, but sometimes it's also a question whether do you have EUR 10 or EUR 15 to spend and that those low price points become important for a certain segment of the market that we also see. But when we get everything together, like we do in some of the flagship stores that we have upgraded, like we see in our online channel, we see a very strong sort of sell-through on full price.

And then final one, is there an opportunity to sort of focus more on those customers that -- I know you want to be across the board. But if some of those lower income consumers are more challenged, are you able to play with your product mix and things that increase maybe the average selling price via mix to try and maximize sales to those customers that do have the wallet to spend?

We see that over the last year, the last 2 years, it's been really positive to see that we are able to sell a wider mix and a wider range of products. That we see customers coming to us for also the sort of high functional athletic tights that have a higher price point or they come to us for seeing really good performance on this spring outdoor collection, which is a higher price point. We see good performance in denim, all of them sort of increasing the mix of prices.

Still, we welcome everyone, and it's important for us that you can always find very attractive, sustainable but relevant product at an attractive entry price point as well. And we see that we have potential and work ahead of us to strengthen both the categories. And that's sort of how we want to widen our offer to build an even more relevant H&M.

[Operator Instructions] And your next question comes from the line of Richard Chamberlain from RBC.

I've got a couple of questions, if that's all right. So the first one is just going back to the tech investments. So I wondered if you can quantify how much was the effect on OpEx from tech investments in the second quarter and how much you're looking for, for the second half? I'm just trying to get a feel for how they might affect the underlying OpEx trend for the rest of this year.

Well, as we said before, the program to start to sort of upgrade our core ERP systems and our fundamental tech infrastructure has started, but it has not yet started to affect the OpEx level. So that is ahead of us. So -- and that is why we remain with our guidance of low single-digit sort of OpEx cost increases in local currencies. And the delta versus today then is, to a great extent, attributed to the OpEx part of the tech investments that we're starting to do.

Okay. And then second one is on pricing and price competitiveness. How do you view your sort of relative pricing now in Western Europe and the U.S. and whether you need to sort of reinvest in the offer on price to drive sales volumes?

It's tremendously important for us that the customer can feel confident that you always find the best, most outstanding value for money when you come to H&M regardless of price point, regardless if it's a EUR 4.90 T-shirt for school start or if it's an elaborate piece in our spring collection for EUR 99. And we are doing work all the time to make sure that we are both offering outstanding value for money, but also that we are competitive. And that leads to, at certain times, investments into lowering prices to be more competitive.

But more than that, it's about how we build up the assortment structure and make sure that we have a good coverage on the most relevant and attractive price points and that each product provides outstanding value for money at that price point. So it is an ongoing work. We are continuing to build on the fact that customer receives our widened assortment and our wider product mix very positively. We continue to build on that while making sure that you always find also very strong low price entry category price points at H&M. I don't know if you want to elaborate.

And your next question today comes from the line of Erik Sandstedt from Kepler Cheuvreux.

Erik Sandstedt from Kepler Cheuvreux. Couple of follow-up questions here. I'm not sure if you mentioned it. But have you seen -- in terms of June sales, have you seen any impact from the ongoing heat wave in Europe?

So looking at the monthly sales outcome in fashion retail is always very tricky because it's affected by those very short-term effects where weather is probably the strongest one. And you should always be cautious to look at that short number because over time, weather is neutral, but in the short time, it has a very big impact. So from what we can see, the last 2 weeks, there's been a big interest around the most summer-ish collection, which is no surprise given the heat wave that we have seen.

So H&M is a great destination for summer garments, and we can see that we are relevant for the customer when there is a heat wave. But I would be very cautious to make any bigger conclusions. We assess the month to be much in line with the sales performance that we have seen so far this year, which is below what we're satisfied with.

Yes. I understand. And then just a follow-up question on the earlier markdown question because I guess inventory levels continue to decline year-over-year, but we're not really seeing any positive impact on markdowns. You basically mentioned a flat impact here in the second quarter and also a guidance for flat impact in Q3. So I mean, are you suggesting there is no sort of strong correlation between inventory levels and markdowns? Or how should we think about it?

There is. But if we then sort of unpack into 2 components, we can see that the sort of stock solving component goes down quite a bit. But what Daniel described and what we can see is that sort of commercial activity we've needed to sort of keep on a similar level, and that is then the counter aspect right now then. But in the long term, once sort of -- hopefully, we are through this more subdued consumer confidence, we believe that we will more reap the rewards of the more effective inventory and then getting the benefits of normalizing the commercial aspects of markdowns and remaining on the lower sort of stock solving aspect of the markdowns.

There are currently no further phone questions. I will now hand the call back to the room.

Thank you. Any further questions from the room? No. Turn over to you.

And that concludes this first half year press conference. Thank you so much for joining. Thank you for your continued engagement and interest in H&M. We truly appreciate that. If we don't speak before, we will meet next time on 24th of September for the Q3 report. So with that said, I wish you all a wonderful summer, and thank you for joining us today.

Thank you. Thank you.

Good day, and thank you for standing by. Welcome to the H&M 3-month Report 2026 Webcast and Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your first speaker today, Joseph Ahlberg, Head of Investor Relations. Please go ahead.

Good morning, and a warm welcome, everyone. Today, we present the first quarter results for 2026 for the H&M Group. My name is Joseph Ahlberg, and I'm Head of Investor Relations. Before I hand over to our CEO, Daniel Erver, I'd like to share this morning's setup. Daniel will share a short summary of our results, walk you through selected highlights from the quarter and provide a brief outlook. We will then open up for a Q&A session where Daniel, our CFO, Adam Karlsson and I will be available to answer your questions.

So with that, please welcome, Daniel.

Good morning, everyone, and thank you so much for joining us today. In the first quarter, we continued to make important progress in a quarter marked by a cautious consumer and large currency translation effects. Overall, our profitability continues to improve. The rolling 12-month operating margin increased to 8.4%, up from 7.0% last year. Looking at sales, sales decreased with 1% in local currencies during the quarter. This was mainly driven by weaker demand in December following strong Black Friday sales in November, combined with around 4% fewer stores and a continued cautious consumption in several of our key markets. In addition, sales in SEK were negatively impacted by a currency translation effect of 9 percentage points.

As the quarter progressed, we have seen a positive reception of our spring collections so far, contributing to improved sales development in February and in March. For March, we expect the group sales to increase by 1% in local currencies compared to the same month previous year.

Turning back to profitability. We continue to see improvements. Gross margin increased to 50.7% and operating margin improved to 3.0% from 2.2% last year. We continue to see positive effects on gross margin from supply chain improvements and reduced markdowns as a result of increased precision in inventory planning. And combined with good cost control, this supports overall profitability. So overall, this reflects a disciplined execution across several areas of our business. All in all, we are on the right path and continue to build a strong foundation. As said, we focus on strengthening our customer offering through product, experience and brand, while we maintain good cost control. At the same time, we continue to remove layers, shorten decision-making paths and move decisions closer to the customer, initiatives that both increase speed, but also relevance in how we operate.

Starting off then with our focus on product. Shorter decision-making paths together with closer supply collaboration allows us to increase the share of in-season buying, something that also helps us to respond more quickly to customer demand and market trends and to create a more relevant assortment. Combined with improved demand planning, this has contributed to higher inventory productivity at the highest level in 10 years in relation to sales and reduced working capital during the quarter. As we now move into the spring, we see that the inventory composition is good.

Moving on to our focus on the customer experience. We continue to optimize our store portfolio and roll out store updates. As one milestone, we will reopen our iconic flagship store on Hamngatan here in Stockholm on April 10. At the same time, we also continue to expand, for example, in Latin America, where we will open in Rio de Janeiro in April and later on this year in Paraguay. On the digital side, we continue to develop our digital store, improving search, ranking and checkout to make it easier for our customers to find what they want and what they are looking for. We are also making progress within AI, increasing the speed of core production and automating how we interpret and integrate data. All together, this enables faster, smoother and a more personalized customer experience across our digital channels.

Turning then to our third focus, brand and marketing. We continue to strengthen relevance through strategic initiatives and collaborations. Examples that we have seen in this quarter includes H&M REDSTAGE, the collaboration with Stella McCartney and the custom H&M design worn by Jihoon Kim at the Academy Awards. And just yesterday, we saw a fantastic fashion show from COS in Seoul. In parallel with these branding initiatives, we continue to increase the precision of our marketing investments.

And now before we move on, I would like to share some of the highlights from the quarter. Please enjoy.

[Presentation]

So let me also touch on our sustainability work. Today, we are publishing our annual sustainability report. And as we mentioned in the last quarter, we continue to make steady progress towards our targets. Our absolute Scope 3 emissions decreased by 34.6% in 2025, keeping us on track towards our 2030 targets. This is supported by an increased use of lower impact materials and strong long-term supplier partnerships. The share of recycled materials increased to 32% and 91% of the materials are now from recycled or sustainably sourced sources.

Moving on to a brief recap of our financial outlook. The financial outlook for the year remains, and we would like to highlight that for the second quarter, we estimate the overall effects of external factors on the gross margin to remain somewhat positive compared with last year, although current geopolitical instability in the Middle East could, if extended, result in slightly additional cost pressure. We do not intend to continuously push gross margins beyond the normalized levels of 54% to 55%, which we are now approaching. We will reinvest where it makes the biggest difference, for example, in quality improvement, in in-season bearing and in competitive pricing to stay really competitive and relevant for our customers.

We expect the cost of price reductions as a percentage of sales in the quarter to be somewhat higher than the same period last year. And we see that the improved inventory productivity and good inventory composition enable us to lower end of season sale. We also, at the same time, see a more cautious and selective consumer and their behavior triggers us to increase the need for using temporary activations and deals. On SG&A and as previously communicated, we have the ambition to grow SG&A at the low single digit in local currencies for the full year 2026. Here, with the implementation of new tech infrastructure that will result in a somewhat increased cost pressure throughout the year, while our focus remains on enabling good cost control through efficiency measures, including a continued work on the store portfolio optimization, implementation of a more efficient organization, warehouse network optimization and a disciplined allocation of resources to the areas of the highest business impact.

So to summarize the outlook, we continue to take important steps in the right direction. We make selective investments in product, brand, infrastructure and store portfolio while we maintain good cost control and always with a customer in focus so that we can offer a relevant and current fashion at the best value for money. With our global footprint, a solid balance sheet and a diversified supplier base, we have the resilience to adapt quickly to changing conditions. And we continue to build the foundation for long-term profitable and sustainable growth.

Thank you for listening, and I will now hand you back to Joseph for the Q&A.

Thank you, Daniel. We will now start the Q&A. [Operator Instructions] Over to the operator, please facilitate the questions.

[Operator Instructions]

And our first question today comes from the line of Daniel Schmidt from Danske Bank.

Daniel, Adam and Joseph, hope you can hear me.

Yes.

Maybe just -- I think you surprised everyone a little bit both on the gross margin and then the OpEx and the cost control there. You did say in the Q4 report and you reiterated that today that you expect OpEx in local currencies to grow low single digits and sort of that, of course, related partly to the platform rollout that's going to be gradual throughout the year. Have you so far been able to neutralize that effect? Or hasn't it come yet through lower handling costs given the inventory level? Or what's the reason for OpEx being down also in this quarter?

Adam here. Yes, I mean, you're right. We see the inventory productivity, of course, supporting operational cost and particularly within the logistics side. So that is supporting us. But to your first question, then we don't see the effects of these platform investments to show up yet, but rather as we spoke last time towards the second half of the year. So positive effects of good inventory productivity, particularly within the supply chain. And then the full year guidance is somewhat then half year too heavy connected to the platform investments.

Okay. And that productivity, could that be something that could play out also in Q2? And then as we get into the second half of this year, that's going to be neutralized by the tech investments. Is that how to view it?

Yes, exactly. I mean we see one of the benefits of, of course, the work that we've done throughout the supply chain with higher precision is that we also not only over time, will reduce stock levels, but it also affects productivity. And we see that it has during the first quarter, and we estimate that it will continue to do so coming quarter.

Okay. And then my second question is on the Middle East. I know your exposure is very small. I think it's 3% of your store network and maybe even less of sales. But still has that been sort of something that has been rocking the boat a bit when it comes to March trading?

So this is Daniel. First, it's important for us to recognize the severity of the situation, and we are being working closely with our partners, of course, to protect the safety of customers and colleagues in the region. As you mentioned, our exposure with that said, is fairly small. You're right, 3% of the number of stores in the region. We also have a low share of air freight in our full supply chain. So that has also had a minor impact so far. On a global scale, we don't see any significant impact on the consumer behavior at this point in time, although we are very aware of that the consumer has been under high inflationary pressure for a long period of time and increasing energy prices will have a spillover effect, and we see that, that could have -- if the conflict is sustained, a significant impact on the consumer behavior. But we are not in a situation where we can make predictions about that at this time. But for the current trading of March, we don't see any major impact apart from the effect in the affected region.

We will now go to the next question. And the question comes from the line of Fredrik Ivarsson from ABG Sundal Collier.

Maybe first a follow-up on the last question on demand, but more maybe pinpointing the U.S. market and current trading, whether -- I guess I'm curious to hear whether you've seen any signs of market demand weakening during the last few weeks as a result of all the geopolitical events and inflation worries and et cetera, et cetera.

No, we don't see any short-term effects that are worth to point out. We do see that there has been a surprisingly strong demand in the U.S. for the full of 2025, and that has also continued into 2026, where we had a prudent planning going into the this year as of the leaving April and the tariff situation. So we have not been supplying fully to the demand that we could see in the U.S. We worked on making that sort of increasing the supply to meet the customer demand, but we've also been through a period of sale and end of season clearance so we also had a low supply in the U.S. So -- but we have seen -- that's more things that are within our hands. We have seen a solid consumer demand in the U.S. that has been stronger than we estimated in the middle of 2025.

Okay. Good. And second one on the Q1 gross margin. Approximately how much of the 1.6 percentage point expansion was due to external tailwinds and how much was more, I guess, related to supply chain work and all that?

Majority was based on our work within the supply chain and the sourcing excellence approach that we have with consolidating suppliers and creating a stronger partnership with the top suppliers. But then, of course, we have other effects then going against us, such as the duty now fully in there, and then we have currency starting to trickle in as positive. But the majority is based on our own work within the supply chain.

Okay. And a short follow-up, if I may, on that. And I heard what you said before, but I guess, how should we think about the ongoing gross margin progression as we look into the rest of the year, I guess, given that you guide for negative markdowns in Q2 despite the low inventory situation. And I guess, external tailwinds are becoming less positive as well.

I think as Daniel said in the outlook, we are sort of targeting the interval, and we believe that the sourcing excellence efforts give us a good shot at reaching that target interval, and we intend then to reinvest any sort of further upsides that may come from currencies and other external factors. And then, of course, need to balance it in the other way with the increased uncertainty regarding freight prices and energy prices. So looking ahead, we call out then that the net effect of these external factors will continue to be somewhat positive for Q2. So a fairly similar outlook compared to Q1 with the extended uncertainty, of course, of how the world around us evolves, particularly connected to transportation.

Your next question today comes from the line of Niklas Ekman from DNB Carnegie.

Can I ask a little bit about current trading and more specifically about your still the biggest German market, where as far as I can see, we've had 6 months of very weak statistics that have recently turned surprisingly positive in the last 3, 4 weeks. Is that something that you have seen in your sales as well? And any just granularity on differences in different markets? Are you seeing any markets that are improving more than others at the moment or vice versa?

We agree with your view on the last 6 months of the German market that has been a tough market situation and tough consumer conditions. We see and assess that we have gained market share during this period of time in Germany, but of course, it's still a challenging market. Then -- on the short-term fluctuations, we also saw a stronger beginning of March. We have -- weather plays a big role during these months where you can have short-term fluctuations. We also see this year that Ramadan is 10 days earlier than it was last year. So that falls in the beginning of March. It comes towards the end of March this year. So there are some factors that make the single month difficult to comment on. But for the large scale, it's been a muted demand, and we see that we have gained market share for Germany. Otherwise, the call out, we see Southern Europe has been strong for us. We are happy with the development in Southern Europe, and we also see India as another example, doing well. We're also happy with sort of the performance of South America. So there are some call-outs of positive developments.

Very clear and thanks for the granularity there. On input costs, your -- or external factors, your comment about expecting a slightly positive effect in Q2, is there any way you can put that in relation to the effects you've seen in the last 3 quarters? Are you expecting more or less? And do you think there's a chance that some of this could linger into H2 as well even when comparisons start to get more difficult?

I mean if we try to decompose it somewhat and just look at where we are today, we see that currencies with the U.S. dollar weakened relative to euro will continue, but that will sort of start to fade out when second half starts. We see fairly as of yet, neutral material prices, but that's also, of course, connected to how input costs may vary with the energy prices. So that we sort of see as fairly neutral. And then the last piece is the shipping and the transportation questions that we see a big hike in air transport costs right now. But as we have a fairly low share of that, we feel that we are not particularly hard hit on it. And then we just need to wait and see how the situation unfolds. So the net effect of all of these is a slightly positive, and it's mainly driven by the currency effect that will then over the second half of the year slightly taper off as comps get tougher.

Your next question comes from the line of Mia Strauss from BNP Paribas.

First one is maybe just on your inventory position, which has obviously improved quite significantly. Do you have a target of sort of inventory days that you want to achieve over time?

Yes. So we aim to continue to progress, although the pace that we have had over the last quarters is maybe not what we see moving forward. It needs to be built on structural improvements to our supply chain to improve the tech infrastructure and so on to make sure that we really improve the productivity while maintaining good availability and makes it easy for the customers to find what they're looking for. So that's the job that will continue. Long term, we aim to be in the span of 12% to 14% as a share of sales, and that we see is something that continues to be an important target for us to continue to move on. But the pace of progress would need to be matched with the capability building of increasing proximity sourcing, taking data decisions, increasing precision in the supply chains through a stronger tech infrastructure, but also a stronger supply chain network.

Great. That's clear. And then maybe just on your -- if you can give us some color on your performance by category because I think you previously said womenswear has been doing well, but menswear was a bit lagging behind. Is there any update to that?

So looking at the quarter, we are not satisfied with the top line performance. We had higher expectations and had higher plans, and that goes for -- across the board for all the customer groups, including womenswear we had a higher expectation for this quarter. The improvements that we made around how we develop, how we really create an attractive competitive assortment, all of that work started within womenswear, and we are taking that work to the other customer groups as well, and we see first good indications of getting traction also in the other customer groups. But as the quarter is weaker than our own plans, that also goes for womenswear.

Okay. That's helpful. And then just finally, on agentic AI, how do you see H&M's position in the sort of agentic commerce world?

It's a very interesting topic, which we are spending a lot of time on. We will have to learn and see how the world develops. It's still very early days. We have been active on sort of integrating with the big large language models for transaction as well. And we can see that there is a consumer interest, but it's a very, very early stage and a very, very minor part of the organic traffic that comes that way today. But we are exploring it. We believe that there is -- we know that our customer and all customers find fashion not always easy and that you need guidance, you need clarity, you need help to pick what's right for you to express your personal style and the way you want to look.

And there, agentic AI can be a fantastic help. And we are exploring it how it can support our own experience in our own channels, how we can, with agentic AI help you to dress in the way you want to express yourself in the way you want to find the pieces that are good for you, but also how we will interact with agentic players that are brand agnostic and how we show up there. And there we believe the most important thing is that we provide an outstanding value for money so that we become the #1 choice for more customers than only the ones who are in our ecosystem today.

Your next question today comes from the line of Vandita Sood from Citi.

Just one for me, please, but it's a slightly longer question. When I look at the dollar move, I see that the FX tailwind should actually be a very significant tailwind in the upcoming quarter and peaking in that quarter. But you only say that external factors should be slightly positive. So just wondering what else are you building in that is like offsetting this? Is it tariffs still -- are you planning to do some price investments and that's also built in sort of your net expectation? This is going back to your comment on pricing. You said earlier that you don't sort of intend to indefinitely keep growing the gross margin. So yes, just trying to understand what the offsetting factors are because I think FX should be quite a big tailwind.

Thank you for the question, Vandita. This is Joseph. So when we look at our guidance for the second quarter for external factors, we guide for a somewhat net positive effect for the second quarter. This is a similar guidance as the outcome that we have seen in the first quarter and also in last quarter in Q4 of 2025. The main negative factor affecting us in Q1 is the cost for tariffs, which is the main year-over-year drainer. This is now expected to be at more or less a full impact, but also when looking towards Q2, a negative impact of similar magnitude. So that is on the negative side, the main factor. Then on the positive factors, we have the transactional FX support expected to support mainly on the positive side in Q2, I'd like to point out, based on the buying that was done during -- to a large part during 2025 at attractive dollar exchange rates towards our major selling currencies. So this is the key moving parts explaining our guidance.

Okay. And sorry, just one clarification. So if you were planning to do any price investments, that wouldn't feature as part of your external factor commentary, right? Because that's an internal decision.

That is correct. That's one of the internal decisions, one of many which are affecting the outcome on the gross margin. What we guide on is the external factors.

[Operator Instructions] And your next question comes from the line of Adam Cochrane from Deutsche Bank.

A couple of questions, please. When we're talking about your increase in promotional intensity, I just want to confirm that's really because of the customers maybe a bit uncertain looking for a bargain. That is you having to put selective markdowns on current season product more than you anticipate rather than having to clear through old inventory. Is that correct?

Yes, that is correct.

And is there any big differences in that by region? Is there certain areas where the customer is becoming more, let's call it, price sensitive than others? Or is this more of a sort of global thing that you're seeing?

It's linked to -- across the globe, there's been a strong inflationary pressure on the consumer for many years. But then, of course, there are certain markets where we see a higher pressure on the consumer spend and a weaker consumer market. And then we are -- it's more towards those areas, but it's a general consumer and our customer base have had a lot of inflationary pressure for quite some time. So that is obviously the need to activate and the customer looking for making a good deal and part of the customer base really wanting to find an attractive bargain, that piece of the customer base, we see a need to activate with the temporary activations and tactical deals.

Because over the last couple of years, it feels like the H&M stores have become less inventory density in the stores, they've looked cleaner, neater, tidier. You've got a philosophy, I think, of making the store experience better. But how are you going to try and manage that with increasing the promotional intensity in store? Because it felt like you've been trying to move towards more of a full price, more fashion-led type customer base. But have you sort of had to balance that with a certain bit of your customer who only reacts to buying on promotion. It feels like it's quite hard to balance those 2 bits within the improving estate that you're aiming for.

It's correct. We're working very hard with -- throughout the organization to really create an outstanding value for money, and that's many pieces. It starts with and the most important thing is the product and what kind of product we develop that that's relevant, that it works with the best suppliers, the best materials, the trims, the components to really create an attractive product, then put that in an environment that it deserves an elevated experience that really shows the customer the value for money, but also helps the customers navigate and find their piece regardless whether it's a physical store or digital. And that work is ongoing, and we see that is having a positive effect. With that said, we have a very large portfolio. We are into very wide demographies and managing this change is equally important to always be aware about the consumer spending power and what consumer base we have in which location, and that's what we look at when we try to navigate the right level of activations.

We will now take the next question. And the question comes from the line of James Grzinic from Jefferies.

Just a question around de minimis in the U.S. and potential learnings there for what is to come in Europe really in the coming months. I guess it's been 7 months since the exception has been removed in the U.S. So it would be great to hear from your perspective, what do you think that's done to the U.S. market competitively? And as you look into, I guess, more next year in EU, what is to come in a few weeks' time means from your perspective, given the lessons learned from the U.S.

So the U.S. as the market globally is very, very fragmented with no single player having a large share. So even if there are big impact on single players. It still has -- there is still a very, very fragmented market and the total effect of the market is not significant. We do see that we have had a strong underlying demand in the U.S., which part can be contributed to that the low-price offer is under more pressure due to the de minimis being removed. We see also that some of these competitors have shifted investments towards Europe to a large extent, which is a sign that it's probably a bit more challenging market in the U.S. So we are monitoring it and following it and seeing it as an opportunity for us. But at this point, we don't do any forecast or quantification of that effect.

[Operator Instructions]

And the next question comes from the line of Andreas Lundberg from SEB.

Just a few quick ones about nearshoring. Could you elaborate a little bit on how much have you moved to Europe? And also on the same topic of your Morris, call it, strategic partners, how many of those are located in Europe?

We continue to make efforts to really shorten the lead time and that all the way from product development, fashion forecasting to the production to shipment and nearshoring is one of the important pieces of that puzzle. But the key for us is to shorten the full supply chain to take later decisions to provide a more relevant customer offer and here. We are ramping up the efforts at a high pace. We do it mainly towards the current fashion pieces of the assortment. We do it in womenswear and menswear. We're also exploring it for kidswear, but it's really on the most current fashion piece of the assortment where we have a high pace of progress. Shifting to nearshoring is one piece of that, but it also comes to which suppliers we work with, which mode of transport that we use and how we shorten also the development lead times to make these decisions at a later stage to become more relevant.

But do you have any strategic partners in Europe?

This is Adam. Yes, we do. And -- but sort of the partnership, it's a model where we then also have the benefit of having suppliers open factories and production units in multiple countries. So when we speak about partners, there are 30 of them. They are, of course, headquartered in different parts of the world, and that reflects sort of our general sourcing pattern. But we then have the opportunity for them to -- under this partnership umbrella to expand their business together with us to ensure that we have a healthy, robust and very flexible supply chain infrastructure. So we do have partners in Europe as well. But more importantly, it's how we, together with them, expand and collaborate both for speed, proximity and, of course, price quality and sustainability.

Cool. I have a follow-up there. You said shortened lead times, obviously a key thing. Could you give some maybe example or some context where is it today versus, say, 3 years ago?

In 2 aspects. One is the actual lead time where we now have capability to within -- get the garment from idea to shelf in 4 to 6 weeks. That is a capability that we built up with to a larger extent than what we have in the past. And then it's -- even more importantly, it's how we change the operating model for how we do design, product development to really make sure that we have a high level of flexibility in the decisions that we make so that we can make those decisions at a later stage and having then a vast network of strategic partners with units in areas where we can take late decisions, but also with capability to help us to shorten the lead time is tremendously important, and that work is ramping up at a high pace during end of '25 and '26.

Your next question today comes from the line of Daniel Schmidt from Danske Bank.

Just a follow-up, Daniel. You talked about -- you mentioned a surprisingly strong U.S. market, maybe on the back of what you feared sort of, I don't know, April, May last year. But at the same time, if you just look at the numbers for Q1, Americas is actually down a little bit more than the group in local currency. Is that -- how does that stack up? Is that due to you not being able to cater to that demand? Or is it -- what's the explanation simply?

So we went into the second half of 2025 with a very prudent plan for the U.S. given everything that was going on. And then we could see more resilience from the consumer than we expected, which led us to have a low supply to the demand. And then Q1 is a quarter with a big impact on end-of-season sale in December and January. And that's where we also said that we had far less end-of-season sale impact in the U.S. market given that we have had a low stock level, a low supply to the demand. So that's the explanation for Q1.

Okay. And do you still see in that number for the entire Americas, you are seeing South America growing?

Yes, we see positive development in South America.

Yes. And the second question maybe, you mentioned increased precision in your marketing investments. Does that also implicitly mean that you had less costs for marketing spend in the first quarter?

Yes, slightly less spend on marketing. This is 2 shifts. One is shifting more of the investments towards media and then the way we optimize media, both between markets and between different channels and how we optimize the content per channel is where we drive the efficiency. But as a level of spend, it was slightly less than the year before.

And do you see that efficiency continue into the coming quarters?

Yes, we do. At the same time, as we evaluate cases for growth opportunity and where we want to invest, but the efficiency work we see has potential for the rest of the year.

Your next question comes from the line of Erik Sandstedt from Kepler Cheuvreux.

Yes. Sorry, I had some technical issues. So I apologize if these questions already have been asked. But firstly, it seems that depreciation cost was quite low in the quarter. What is driving that? And how should we think about the level going forward?

Yes, Adam here. I mean there are multiple factors. The underlying sort of core of the depreciation is attributed to investments primarily in our store portfolio. And as we've had a couple of years of lower investment levels during COVID, one could sort of assume that, that sort of core part will continue over the year. But as it's also related then to IFRS 16 and how we then value our leases and currency effects. It's difficult to predict, and we don't want to give guidance on it. But at the core of it is that we've had a lower investment level into our portfolio during the COVID year, and that sort of funnels through in this.

Perfect. Also, can you say whether the online business is contributing to the higher EBIT margin that you are reporting year-over-year?

Adam here. Yes, it does. We have the benefit of having 2 profitable channels creating a stronghold, but we see that an increasing share of online is good for long-term profitability expansion.

Okay. And then just finally, can you say anything specifically on the performance in the Nordic regions and more specifically, whether you think you are gaining market share in that region in the quarter?

In the Nordics, we started to see a slight improved trend in the fourth quarter. But in the first quarter now as similar to other regions, we saw a sequentially lower demand pattern. We saw a strong Black Friday period in many of the Nordic markets like other European core markets with a slower demand situation at the beginning of Q1. So that pattern has been consistent across several markets, including the Nordics.

There are currently no further questions. I will now hand the call back to Daniel Erver, CEO, for closing remarks.

Thank you so much, and thank you to everyone for attending today's telephone conference and for your continued engagement with the H&M Group. To summarize the quarter, we are making important progress. Profitability levels are improving, supported by good cost control and improved gross margin despite this being a quarter marked by a cautious consumption and large currency translation effects. So for us, this confirms that we are on the right path. We continue to build the foundation for profitable and sustainable growth. As we move forward, we remain laser-focused on delivering the outstanding value for money by doubling down on product experience and brand for our consumers at the same time as we continue to increase the flexibility and the precision across our operations all with the aim to really truly offer our customers relevant fashion and current fashion at the best value for money.

So once again, thank you for listening. And from here, we wish you all a wonderful day. Thank you.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.

Good morning, and a warm welcome, everyone. Today, we present the fourth quarter and the full year results for 2025 for the H&M Group. My name is Joseph Ahlberg, and I'm Head of Investor Relations. Before I hand over to our CEO, Daniel Erver, let me briefly outline today's agenda. As usual, Daniel will start with a high-level overview of the quarter and the full year. This will be followed by a more detailed financial review from our CFO, Adam Karlsson. Daniel will then highlight strategic progress, priorities going forward, and Adam will share a financial outlook. We will close the conference with a Q&A session, where Daniel, Adam and I will be available to answer your questions. So with that, please welcome Daniel.

Good morning, everyone, both those of you joining us here and those of you joining us online. Today, I'm concluding my second year as CEO of the H&M Group. And with that, I feel confident that we are on the right track. I want to start by saying that the progress that we saw in the third quarter has continued into the fourth quarter across several key areas, even though the world around us continues to be uncertain. Sales in the quarter increased by 2% in local currencies. We increased our operating profit by 38% in the quarter, corresponding to a margin of 10.7% for the quarter. This increase was mainly due to a further strengthening of our customer offering as well as maintained good cost control and an improved inventory efficiency.

Looking at the full year 2025, it shows a solid progress across all our key areas, and we continue to strengthen our foundation for future profitable growth. The sales trend was positive over the year as a whole and profitability strengthened during the second half. For the full year, sales increased by 2% in local currencies and our operating margin increased to 8.1%. Earnings per share increased by 5% during 2025. And according to the first preliminary figures, we see that we have reduced our CO2 emissions in Scope 3 by 30% compared to the base year 2019. Overall, these results confirm that we are making a solid progress towards all our important long-term targets. I will now hand us back to you, Adam, and you will take us through more of the financial numbers, and then we come back to the strategic outlook for .

Thank you, Daniel, and a warm welcome, and good morning, everyone. As Daniel highlighted, we have a strong foundation to build on as we have made solid progress during the year. So let me take you through some of the key financial developments for the fourth quarter and the full year. In the fourth quarter, sales increased in local currencies by 2%. And for the full year, sales also increased by 2% in local currencies, confirming a stable underlying trend. We saw sales increasing across a vast majority of our regions in both Q4 and the full year. Online continued to perform well. The sales development should also be seen in the light of 4% fewer stores compared to last year, and we have now also concluded our closures of Monki physical stores.

As we're showing a stable trend in the underlying sales performance, the appreciation of the Swedish crown has negatively affected the reported numbers versus last year and with a currency translation effect as big as 7% during Q4. And given the current FX situation, this effect is expected to be even more negative in the first quarter of 2026. The positive gross margin trend that we saw in the third quarter continued into the fourth quarter with 130 basis points year-over-year improvement. After this strong second half year, we reached a gross margin of 53.4% for the full year. The majority of this development was supported by our improvement work in our supply chain, where the sourcing excellence work and the initiatives drives gross margin improvements.

External factors affecting gross margins were positive in the quarter. In the fourth quarter, selling and administrative costs decreased by 3% in local currencies compared to the same quarter last year. As mentioned, cost control is and remains an important focus across the organization. And just to highlight a few of the key drivers behind our improved cost base throughout 2025, I'd like to mention logistic efficiencies. We have continued ongoing renegotiations of lease agreements. We have strengthened our indirect sourcing and also found more effective and efficient ways to use our marketing resources. Operating profit increased significantly in the quarter and operating margin for Q4 was 10.7% compared to 7.4% during last year, an improvement of 330 basis points.

For the full year, operating margin increased from -- increased to 8.1% compared to 7.4% last year. And with a strong profitability improvement in the second half of 2025, the long-term rolling 12-month trend continues in a positive direction towards our long-term profit targets. This development comes as we sharpen focus on our core business, as Daniel was outlining, strengthening product, our experience, our brand and with a firm focus on cost control. Inventory productivity improved during the year, and we ended the quarter with a stock in trade in relation to sales of 15.5% compared to 17.2% last year. This improvement reflects the strengthened demand planning capabilities, more efficient buying and overall good stock management. The composition of the inventory is good.

Looking at the long-term trends for gross margin and stock in trade relative to sales, we continue to strengthen both of these measures during 2025 and particularly in the second half. Looking at the graph, you see the dark gray line representing the quarterly gross margin and the light gray line representing the stock in trade versus sales development. And as you can see, the gross margin trajectory continues towards what we have previously discussed as normalized levels. Leverage has been maintained inside the H&M Group's net debt-to-EBITDA ratio, and that is 1 to 2x. In the fourth quarter, we proactively secured a long-term financing with an 8-year EUR 500 million bond at attractive terms under our EMTN program. And with that, we have continued high degree of financial flexibility and liquidity buffer, and that makes us able to navigate the volatility and set us up to be well positioned for capturing future opportunities.

Cash conversion remains strong, and it's helped by active working capital management where we have seen good progress. And in order to distribute surplus liquidity and thereby adjust the company's capital structure, a share buyback program was initiated in November, and it was concluded by the 23rd of January. The Board of Directors are proposing a dividend increase to SEK 7.1 per share for 2025. And if approved by the AGM, it will be split into 2 installments in May and November as in previous years.

So before handing back to you, Daniel, to summarize, we strengthened our gross margin in the second half. We improved inventory productivity, and we delivered strong cost control. Together, these factors supported a significant improvement in the profitability for the quarter and enabled a positive margin development for the full year. So with that, I'll hand back to you, Daniel. Thank you.

So throughout 2025, we have continued to focus on what matters most to our customers, and that is really offering great products, inspiring customer experiences and building strong brands. On the product side, we have made improvements in several foundational areas during the year. We have made our product creation process more effective by a number of things. We have strengthened creativity and craftsmanship. We have improved our demand planning. We are working on becoming faster in our decision-making by strengthening how we spot and analyze trends and through a closer collaboration with our suppliers, as you already have mentioned, Adam.

Combined, these different initiatives helps us to respond better and faster to customer needs and strengthens our availability to deliver more on-trend current fashion. At the same time, we have also continued to develop our customer experience across all of our channels. During the year, we have completed a comprehensive upgrade and rollout of our online store across the globe, where we offer more inspirational content, better product pages and improved search functionality. And that has been very well received by customers, and that has led to a strong sales performance in the online channel during the year. We have also, while improving our digital experience, accelerated upgrades across our physical store portfolio, including improvements in both technology layout as well as product presentation.

We will continue to optimize our store portfolio. And for 2026, we see and estimate that the sales effect from the optimization will turn around to become slightly positive in support of our sales. In addition, we will continue with our digital expansion as well. In August, we reached a really important milestone for the H&M Group when we launched the H&M brand in Brazil. The pride of our teams and the excitement in the eyes of our customers clearly showed us that our elevated customer offering, inspiring experiences and a strong brand truly resonated with the local Brazilian consumer. During the fourth quarter, we continued to strengthen the physical presence with several other exciting openings in key locations across the globe.

We opened new stores in Athens, in Los Angeles as well as in Shanghai, where we reopened our store on Huaihai Road, giving new life to a really iconic location for H&M. Another example is our new store in Le Marais in Paris, where we are offering our customers a more curated and both assortment and experience. And in October, we opened a fantastic new concept store in Seoul in the historical district of Seongsu. Creativity and brand strength remains central to our strategy as we move forward. And during the year, both the H&M brand as well as COS presented their autumn/winter collections at the fashion weeks in London and New York. And I particularly want to highlight and point out that this was important for 2 different reasons. Both it shows our fashion credibility that we can show up at the world's most important fashion weeks as well as it enables us to reach audiences and engage them in relevant social channels in a way that we haven't done before.

And here, you see a few examples from our London fashion show with the H&M brand during September. During the year, we also entered several important external creative collaborations, continuing our ambition to democratize great design and make it accessible to the many. In November, the H&M brand launched a well-received designer collaboration together with Glenn Martens, who is the highly regarded Creative Director of Maison Margiela and Diesel. H&M also announced that we will launch a new collaboration with Stella McCartney during the spring of 2026. I'm very proud together with the team to make real progress in reducing our climate impact.

Since 2019, we have reduced our CO2 emissions in Scope 3 by around 30% compared to the 2019 baseline. That puts us well on track to meet our science-based targets to reduce emissions by 56% 2030. And these results did not come from one single initiative. They come from a hard work of integrating sustainability into how we run and operate our business on a daily basis. So to achieve this, what we have done is we have increased the use of lower impact materials such as certified recycled or organic fibers. And we are decarbonizing our supply chain by working differently with our suppliers. This means that we have fewer but stronger partnerships.

We have suppliers that we want to grow with long term, which is possible for us to offer them more stable volumes and better visibility of what to expect from us. And in return, that leads to them investing in renewable energy, more energy-efficient processes and a phaseout of coal. This close collaboration is truly what makes the difference. When business and sustainability come together, we can truly reduce emissions at scale and show that fashion can be both affordable and sustainable at the same time. And the impact of the work that we've been doing is not only obvious in the results, the work we do both for climate but as well as for all the other sustainability areas. The work is also being recognized externally, where we are seen as one of the leaders in the industry, as you can see here on the slide.

Firstly, the report, what fuels Fashion 2025 by Fashion Revolution. In this ranking, H&M, we were ranked as the #1 out of 200 major fashion companies for our public disclosure on climate as well as energy. Secondly, you can see the Stand.earth, who ranks us as #1 out of 42 different fashion companies in their 2025 fossil-free fashion scorecard, and that's for the second year in a row. Thirdly, you can see the NGO Remake 2024 Fashion Accountability report that rates 52 different fashion companies in 6 different categories. And here, we came out on the second place overall. And finally, we were just A listed by CDP for our work on climate as well as water.

CDP is one of the world's leading environmental disclosure system that assesses thousands of companies each year. So before we wrap up, I want to take the opportunity to have a look with you on some of the key highlights that we just talked about that has happened during 2025. So please enjoy a very short film on what has happened.

[Presentation]

2025 was a year that was characterized by both geopolitical and economical uncertainty affecting both consumers and as well markets in general. And we see similar conditions continuing into 2026, which underlines the importance of us having an effective organization with short decision-making paths being close proximity to our customers and having high flexibility as well as you spoke about Adam's strong cost control. Looking ahead, we will continue to strengthen the foundation for continuous profitable and sustainable growth looking into 2026.

Our focus will remain on what's most important to our customers, and that is to always offer the best value for money. We will continue to expand into growth markets such as Brazil and other parts of Latin America, for example. We are also happy to share that we will reopen the H&M location here in Stockholm on the iconic location of Hamngatan later on this spring. And alongside investments in new markets and upgraded customer experiences across many of our existing stores, we will also continue to invest in our tech infrastructure. By enabling a more data-driven decision-making and increased use of AI, we will be able to make better informed decisions, which will strengthen our flexibility and further enhance our creative capabilities. Altogether, that will help us to deliver a more inspiring, relevant and competitive customer offer. So now back to you, Adam, for an outlook -- financial outlook at 2026.

Yes. Just try to frame the year then in terms of how it will potentially affect our numbers then. Starting with the gross margin. Our sourcing excellence initiatives continues both in Tier 1 and through the Tier 2 supplier base. We see that the improved inventory productivity enables lower need for end-of-season clearances. But as you were also pointing out, Daniel here, we see a weak consumer sentiment, particularly in many of the European markets, and that could drive an increased need for temporary activations and deals. For the first quarter of 2026, we assess that the overall effect of external factors to be somewhat positive compared to the corresponding period last year. However, the cost impact of tariffs that we've already spoke about and that we've already paid are now starting to fully funnel through into our cost base.

We see that we have a somewhat increased cost pressure for 2026, for instance, coming from a low level of one-offs in the cost base for 2025 and connected to the implementation of new tech infrastructure in 2026. Our focus remains on enabling a continued strong cost control and through further efficiency measures that, for example, are including continued rationalization of our store portfolio, implementation of a more efficient organization and of course, continuously allocating resources to the highest area of impact. With this, our ambition is to grow sales and admin costs at the low single-digit levels, and that will continue into 2026. Daniel, you pointed out currency volatility. It has continued also into 2026. A stronger euro versus U.S. dollar contributes positively to the gross margin. And this factor positively contribute as one of the external factors in the gross margin development for the fourth quarter and also affects our outlook for the first quarter in 2026.

However, then the opposite, a stronger Swedish crown leads to negative currency translation effects. This affected our result in the fourth quarter and is expected to have an even greater effect on the first quarter based on the current FX development. We continue to implement demand planning improvements. We continue to strengthen our in-season buying. We continue to improve availability in our warehousing network. And we have an investment frame of SEK 9 billion to SEK 10 billion throughout 2026. And just to point that where the main investment will lie, it will continue to be in the store portfolio and investments in the tech infrastructure that will now lift to be the second biggest area. After a high period of investments in the supply chain, we are now deploying new warehouses during the year, leading to increased availability and flexibility through across our channels. So that was a broad outlook into 2026. And with that, over to you, Daniel.

So all in all, we know that we have more work to do and that we are not done at all. But the progress that we have made so far, combined with a clear plan for where we're moving ahead, gives us confidence that we are moving in the right direction and that we are making progress across all of our long-term targets. I'm proud of what we have achieved, improving our results, our financial results while also staying true to our long-term climate ambitions. And at the center of that progress are our people. It's our great teams that I and colleagues that I meet in stores, warehouses, offices around the globe that truly makes this possible every day. Driven by creativity, engagement and shared values, all of us, we worked really hard to offer fashion, quality and sustainability at a price that is accessible to the many. Thank you for listening. And then we will now go to the Q&A. So Joseph, will you take us through?

I will indeed. Thank you, Daniel. We will now start our Q&A. We will begin with questions from participants in this room and then open up for questions from the telephone participants. [Operator Instructions] With that, we start with the gentleman to the right here.

Niklas Ekman here from DNB Carnegie. I guess the biggest surprise in the results here was the low OpEx. Can you elaborate a little bit here on the reasons for the decline? And you just said here at the end of the presentation that you expect a single-digit increase of SG&A during '26. So I guess this is not a lasting impact. Is this due to a reduction of one-off items or anything? Just if you can elaborate a little bit on that.

On top of the more sort of structural improvements that we've done throughout sort of logistic efficiency, how we operate our stores and how we improve sort of marketing productivity. We have also improved because of the work that we've done in the supply chain, the levels of write-downs and also somewhat affecting the result in the fourth quarter, the depreciation level. So it's -- some of those effects are more sort of isolated connected to Q4 effects, and that is where sort of they end up in the book and I think reinforces the overall trend we have in the more general OpEx development. So I think that is the area to highlight connected to the development in the fourth quarter.

Fredrik Ivarsson, ABG. Question on the start of Q1, minus 2% December, January. Can you say anything about the sort of momentum through those 2 months, whether maybe January was a little bit stronger than December?

So when we guide for current trading, it's always important to take that number with caution because on that short-term perspective, there are so many different short-term effects affecting the trading. So there are a number of effects that are, I think, good to be aware of when we look at -- when we looked at the first quarter development. On one is we see a shift in the market around Black Friday. We see Black Friday becoming Black Week. We see 11/11 Singles Day becoming a phenomenon. That also helped us to drive a strong end of the fourth quarter with a strong performance in the fourth -- in November, and that had a muted effect on the start of December, which we could see across the markets, but also for us. So that's one effect.

Then there is a calendar effect in Q1, the fact that the Chinese New Year is in February this year that was in January last year. So that has a significant effect on the number. Then we have seen muted market demand in some of the large European markets that are important for us. We see that in public numbers and figures for Central Europe. We also see it in some of our competitors reporting. And we believe that we are performing better than the market, but the market sentiment has gone down in Central Europe. And then the last thing to be aware of is we -- looking at the U.S., we speak about the report that we went into the fall with a very prudent planning, given everything that was happening around tariffs and with a big respect for the U.S. consumer.

We've seen that the demand has stayed very strong, and it's positively surprised us, and we haven't been able to fully supply to that demand. And that we worked hard on using the flexibility that we have in our supply chain to really catch up on the supply, but that also have a spillover effect into the first quarter, which is a quarter that is a lot about reductions of the fall season. So those are the different components that we think are important to take into account when we look at Q1 trading.

And also quick, if you could reflect on the marketing investments you've done during the last few years and then maybe especially if you have seen any great impacts on younger generations?

So the marketing investments, we believe, are truly important. As a brand, we have all of our brands, but especially the H&M brand has an important job to always attract and onboard new generations that are coming and marketing plays a crucial role in how we keep the brand interesting, that there's a heat around the brand. So we're happy that we do invest in marketing to be resilient for the long term. We did start and as you know, when we -- in 2024 with increasing the level of investments. And as we have moved ahead, we have learned. So in the beginning, it was a lot about the brand position at large.

When we came into 2025, we shifted more into using our product and the product offering as the core engine of marketing. And that's why we decided for the first time since 2004 to put the H&M's main collection on the catwalk at London Fashion Week because we see that we get a stronger efficiency and effect out of the marketing when we tie it closer to our product offering. And that's -- that has helped us, as Adam mentioned, to continue to stay very active and see marketing as a tremendously important tool, but improve the efficiency, and that work will continue into 2026.

Daniel from Danske. Previously, you have singled out the performance in different sort of gender segments. Would you shed some light on that, womenswear, kids, men's in Q4 into Q1?

So as we talk about also today, product and the product offering truly is the most important for our customers. And we worked really hard, as we mentioned, on a lot of different areas to improve how we leverage our creativity in craftsmanship, how we improve the supply chain, how we improve trend precision. And that work started within womenswear, and that's where we started to see effects during 2025. And it has performed really well during 2025. As we come out of the year, we start to spread those learnings and that development to all the customer groups. So we expect to see effect from the learnings we made on womenswear also spreading to the other customer groups throughout 2026.

Is it sort of kids before men's? And I think you've said before that kids are maybe 1 year behind in terms of spreading the learnings.

I think we have assessed that doing work at that scale as we have done in womenswear, it probably takes a year. And sort of as we started the work in womenswear, it takes some time to catch on. But we don't -- we see no need for holding menswear back as we accelerate kids, they can accelerate in parallel.

But are you seeing that sort of the learnings being translated into kids and men's? And is that now having an impact? Or is that still too early to see a real impact?

We're starting to see really positive receipts and indications, especially looking at the new spring season that has come in that we start to get traction on menswear and kids wear -- that makes us confident that they will benefit from the same development as ladies did.

Yes. And then just maybe a question for Adam. You mentioned the tech investments. Is that going to be evenly spread through the year? Or is that sort of front-end, back-end loaded in any way?

We will see an elevated level of investments coming into the end of '26. And then we believe some of these things that we're doing, changing sort of the fundamental ERP systems for a group and so forth will take multiple years. So I think we will see the first beginning of it in this year and then will be fairly evenly spread over the coming years. So it's more of a late '26 effect for this year, but then ongoing on an elevated level to capture this potential that Daniel was speaking about, AI improvements and such.

We have invested significantly in our logistic network, and we start to see that, that comes to life and start to generate benefits in '26 and then that investment level goes down as we ramp up the tech investment. And that's not only for necessity, it's really to build the foundation for future success for H&M that we need to do these tech investments.

So with no further questions from the room currently, let's hand over and receive some questions from telephone participants.

[Operator Instructions]First question comes from Adam Cochrane with Deutsche Bank.

First question, you're talking about your supply chain improvements. Can you just try and either quantify or at least qualitatively describe what the -- what you're doing in terms of the supply chain improvements, what it means for the customers, the speed of lead times? Just a way of thinking how much have you done on it compared to where we were? And how much have you still got to go looking forward?

So we're doing a number of different things when it comes to supply chain. One important thing we spoke about that helps us both with the speed, with the quality as well as sustainability is to consolidate our supplier base, where we work with fewer, but really the best suppliers out there, and we build long-term strategic partnership with them, which helps us both to improve the product making, but also price quality as well as sustainability. So consolidating the supplier base and improving the way we negotiate and build strategic partnerships is one important piece. That also allows us to leverage some of their capabilities and strength when it comes to trend detection, design, supply and leveraging some of their best capabilities to a bigger extent helps us to further improve our entire sort of flexibility and speed of reaction.

Then we are working with improving the way we forecast demand and then how we build a strong logistics network to match supply to that demand and that is leveraging data and now further on looking to leverage also AI into that process to become much more precise in how we forecast demand down to every single stock node, and that helps us to better match supply to that demand. So -- and then we work intensely with our design teams here, which is also part of the supply chain on improving their trend forecasting capabilities, leveraging their craftsmanship, giving them AI tools that really can enhance their creativity at scale. So those things combined helps us to reduce lead times.

And as we talked about before, we don't need to reduce lead times everywhere, but in certain product lines within certain categories, that speed and flexibility is tremendously important, and that we can really make sure that we within 5 to 6 weeks can take a product from idea to the shelf and present it to the customer. So on the cost side, we have come far. It's been a big part of how we have been driving the -- gross margin improvement has been through the sourcing excellence initiatives that Adam described. But as we also mentioned, we see continued potential into 2026 and beyond on how we work with both Tier 1 and 2 suppliers on that side. When it comes to leveraging the capabilities and developing our own capabilities for being more reactive and more relevant, I think we have taken one important steps, but there are several more important steps to be taken to further improve the current fashion level of the collections that we present to our customers. I don't know, Adam, if you want to complement this.

But also mentioning the investments that we have done in the sort of just pure logistic network also enables us to stock pool effectively and not to be sort of channel-specific in how we steer the stock. So it's, as you said, a full end-to-end approach that we're taking, everything from leveraging data in our creative processes to enabling just physically simplifying that we ensure that the stock is supporting the customer in the right place at the right time, so...

And the tech investments that we speak about will also heavily focus around not only, but to a large extent, also around supply chain improvements and new capabilities.

Are those in supply chain changes, do they go across all of the cost of goods sold, all of the products that you're doing? Or is it only at the moment, a limited proportion of your products and there's still some to come?

It goes across all. But I think, as I said, there is some potential that we have captured and more potential to be captured still, but it goes across all the categories. Then there is different benefits in different product categories. If you look at Essentials and Basics that have a very high predictability. It's more about having a good safety stock, high availability, low cost of transportation. That's where we can optimize. And then if you look at the latest fashion is, of course, to make decisions later with better data, which reduces the fashion risk and increase the precision.

Great. And the second question I've got was really the market we're hearing from some others is that they're having in Europe, particularly to invest more of the gross margin gains into pricing, maybe the market has become more competitive. Chinese retailers or others. How are you thinking about -- you've obviously got your gross margin external factor gains coming into 2026. You've got to make some investments into OpEx. How are you balancing the equation with thinking about investing gross margin to get that top line moving in the current customer environment? Is it something that you can do with regard to pricing and promotions to stimulate demand? Do you think that's likely to happen?

Yes, that was what Adam mentioned. So we have a couple of factors working in our favor. It's the external effect on the gross margin, but it's also a lot of the improvements we do ourselves in the sourcing excellence work. But then it's also the fact that the collections have been very well received by the consumer, which allows us to sell a wider range of products and also helps us to reach a much better stock composition. And coming out of the fourth quarter, we also see that we have a very healthy stock level. So as Adam said, we don't need to use as much of promotion investments to solve overstock because the stock is very healthy and the collections are being well appreciated.

But we do see a given the muted demand and that there is a large part of the customer base who is really looking for making not only great value for money, but also finding -- making a great deal and finding products at discounts. So that's why we are using reductions as a lever to drive top line and stimulate that demand. If you look just at how collection has been received and how our stock levels, we could be more aggressive in reducing the reductions, but we do see a need that we need to stimulate the demand.

And on the investment side, that's where we also reiterate -- our speaking about normalized gross margin. So we don't aim to have a gross margin elevation, I mean, to the stars given the somewhat temporary external factors, but we'd rather take that and as what you said and then reinvest in the product, so to say. But there's still some improvement potential in how we work, but then also that allows us together with external factors to reinvest in the product to strengthen the customer offer.

We now turn to Vandita Sood with Citi.

The first one was just on the CapEx. So I think it's -- you guided to SEK 9 billion to SEK 10 billion, which is lower than this year. And I know you've commented on sort of completing the supply chain investments, but you're ramping up tech. But I guess it's still a bit surprising in the context of a net positive contribution from stores. So just wondering if you can walk us through your plans for CapEx.

Well, if we then divide it from the top then, so we will see a lower level of closures this year and a higher share of new openings. And then we were pointing out some of the markets we continue to invest in. Then we are also finding ways to leverage learnings from sort of rebuilds over the last couple of years to really deploy that into many stores and make many customers get the upgraded shopping experience. And that allows us to be sort of CapEx effective during 2026, but then, of course, leveraging the learnings in an effective way. Secondly, we have the logistics side that has been on elevated levels, both '24 and '25, and that is more of a cyclical level. Now we're sort of seeing that we have a very strong setup that will be started to take into operations during end of the year that allows us for the benefits that we're outlining then with flexibility and availability.

And thirdly then, tech is also somewhat cyclical. During 2018, 2019, we did big sort of fundamental investments in our online platforms. Now it's time again to do those and also leveraging a lot of the new technology that comes to ensure that we are future-proof here. So we're shifting focus to ensuring that the core of our technology is future-proof, and that is also somewhat cyclical. But it's, at this time, countercyclical towards the logistic investments. So the net effect will be negative as the elevated levels are coming down on the logistics side. And as I mentioned, the increase on the tech side is starting this year, but it's likely to increase on a somewhat elevated level also into '27 and '28. I don't know if you want to add anything on.

I think you can connect to the store portfolio. I think we spoke with that before that we are opening as well as closing stores. The stores that we are opening are stronger than the stores that we are closing. So -- and now we come down given that we are moving out of a period of high level of consolidations, both with Monki as we closed the last Monki physical store this year and also coming into a lower level of closures in Asia, the net effect becomes positive. And then we have worked with the team intensely on how do we build an exciting, inspiring physical store experience. And part of that is completely rebuilding a store, which is high CapEx intensive, but part of it is also identifying what are the key levers that really makes the difference for the customer and their perception and picking out some of those pieces and putting that into a program that can reach a further -- a much larger part of the portfolio is the work that we initiated in the end of 2025 that would spread into 2026.

So that means that we'll touch a lot of stores, but at a lower CapEx level than if we would go through with a full level rebuild where we sort of clear out ceiling, flooring, HVAC and everything. Now we're going to touch the key value drivers instead. And that allows us then to touch more customers and their experience.

And just one more sort of more long-term question. You also own Sellpy. Could you just comment on how you see the increasing sales in the customer-to-customer platforms and the resale market and if you're seeing any impact on that in the first-time market?

No, we see an increasing consumer interest and the behavior shifting to be a more natural complement to the first-time market is how you shop secondhand. And we are really proud and grateful to have Sellpy as a part of our group, and they have delivered a very strong year when it comes to growth, tapping into to that shift in customer sentiment. We see it in Northern Europe, but we also see a very strong year in Central Europe for Sellpy, which is great to see. And we see, of course, on the site -- so Sellpy is not the peer-to-peer. That's sort of a well-managed service, which makes life very easy for the customer where you sort of have your garments picked up, you have them sold for you and you're part of splitting with the profit, which makes it very easy to reuse your wardrobe and be more sustainable. And it also is a clear customer benefit of having a monetary sort of gain from doing it.

The peer-to-peer, we see are accelerating. We are -- have a few venture investments in our venture into peer-to-peer platform because we see that is also a great service for the customer and that we will see continuing. But we are monitoring through Sellpy and through our venture investments, how the market is developing. And we are continuously looking at how can we combine these 2, where does it make sense to combine it for the customer behavior and where is it more that it runs in separate channels. But it is an interesting development and a development that we see as very positive that our garments are made to be used many, many times and they can be used through generations and having more ways for the consumer to do that is something very, very positive for our long-term transformation.

Now I'll turn to Richard Chamberlain with RBC.

I've got 2 questions as well, please. First one is around FX. Obviously, there's been some quite extreme FX moves going on with a stronger SEK and a stronger euro against the dollar and so on. And I wondered if you can talk about how you approach pricing in that environment, especially in markets where the currency has been particularly weak against the Swedish crown and whether you're trying to sort of smooth some of that pricing impact out for this year?

Should I start and then please fill in. So for us, the most important thing is to always offer the best value for money and be truly competitive so that all customers coming to us can feel really confident that they always make the best deal and get the best value for the money they spend when they come to us as the combination of relevant fashion, quality, price and sustainability. So that means that we are monitoring our positioning in the market, assessing the strength in our customer offer, how strong are we? And based on that, we are adjusting our price positioning. We are not adjusting price in markets that are euro markets or dollar markets because of the SEK strengthening.

We are looking at each individual market because that's the market where our customer lives. And then, of course, those markets are shifted depending on how their currency is affecting inflation and the local market position. But we are not -- by being a Swedish company and translating into SEK, our top line, we are not making currency adjustment because of that. We do it from the end of looking at the competitiveness and the strength of the customer offer that we want to see in each market.

So our hedging strategy then supports that way of thinking.

Got it. Okay. Brilliant. And my second one is on the U.S. performance that looks to have been a bit sluggish in Q4. I think you mentioned that you felt you're a bit tight on stock availability there. Are you now building back stock availability in the U.S.? Do you think it will -- it sounds like there's still going to be some effects in Q1, but are you expecting that to be sort of more normalized by the end of this first half? Or should we still expect a pretty cautious sales outlook for the U.S. market?

So when we looked at the U.S. this spring with all the changes that were happening around tariffs and the situation, we decided to apply a prudent way to approach the U.S. And then we were positively surprised by the continuous demand for our offering and the resilience of the U.S. consumer. And then we have used the flexibility that we built up in the supply chain to gradually catch up on the supply to match it better to the demand, but there is a delayed effect. And we see now looking at the spring season that we have a better composition and a better supply in the U.S. But with that said, U.S. continues to be a very volatile market. We have seen a very high level of inflation and price increases in the U.S. markets across competitors. So -- we are accelerating supply, but we are still monitoring to make sure we don't pivot to the other side of overallocating to the U.S. But we see that the composition of the spring season is better fit to the demand expectations that we have for the U.S.

We now turn to William Woods with Bernstein Societe Generale Group.

We will now turn to Georgina Johanan with JPMorgan.

I have 2 questions related to the gross margin, please. The first one was just in terms of the tailwinds from external factors that are coming through. You've obviously been very clear that there's tailwinds in Q1, but less so than in Q4 if we include tariff effects. As we go through the rest of the year, would you expect the magnitude of that tailwind to widen? Or actually is Q1 like sort of a peak point for that tailwind, please? And then my second one was just in terms of the translation drag on the gross margin that you call out. Is it possible to quantify what that was in Q4, please? That's something I at least find very difficult to estimate.

Yes. So looking at the external factors, as we have called out, we have seen that some of those were positive in the third quarter, also in the fourth quarter, but somewhat less positive than in the third quarter connected to increased cost for tariffs that we have been paying throughout the year. And that sort of trajectory continues also expectedly into Q1, where we maintain an overall positive impact from external factors, but on the margin, more cost impact from tariffs. Overall, looking at 2026, it is positive outlook from the start of the year and with the visibility we have from these external factors.

So currency, freight, materials and so forth, looking net positive, also including tariffs. Then to your second question connected to the currency translation drag. Here, we have seen a -- connected to the strengthening of the Swedish krona and increased impact sequentially in the fourth quarter compared to the third quarter. As we have disclosed, our sales impact from currency translation was negative of 7% in the fourth quarter compared to 6% in the third quarter. And given how currencies have developed so far in this quarter, we also see that this could be also a more negative impact in the first quarter compared to the fourth quarter. So that is what we're seeing. And since we are calling out this effect, it does have a significant effect on the reported outcomes.

Just one follow-up, if I may. May I check, does that external tailwind, does that get larger as the year -- as this year progresses?

It's very difficult, of course, to predict where it's going. But we had a very sharp drop and a sharp difference, at least in the effects that we ended your answer with the SEK to the U.S. dollar. So that was very sharp during the first quarter of last year with then yes, difficult to predict, but we will have a big effect in Q1 and then potentially a less negative relative effect throughout the rest of the year. But that's only sort of speculating, of course, in how the currencies will move. But we are assessing the situation that we're meeting a sharp drop in the first quarter. So that is what we have visibility on right now.

We now turn to Sreedhar Mahamkali with UBS.

Maybe just a couple from me then, please, both on margins, just to build on what Georgina was asking. Maybe again, trying to stand back from the detail a little bit. Adam, I think you referred to normalized gross margin and not wanting, obviously, the margins to go through the stock. I think in the past, you've referred to 54% to 55% being the sort of what you see as normalized gross margin and that being consistent with a 10% operating margin.

So maybe just if you can take a look at it that way, it feels like this is a year where you could be at least at the lower end of that 54% to 55%. Then the question is, how do you sustain it is an important one because clearly, there's a lot of volatility, a lot of moving parts here. So even if you were to get the 54%, 55%, and that sort of range? How do you sustain it? What are your thoughts there? That's the first one. Secondly, going back to a margin target that we have talked about in the past, the 10% operating margin target. What conditions do you now need if you're already within the sort of thresholds of the normalized gross margin to then achieve the sort of 10% operating margin? And do you get -- is your confidence and conviction in reaching that growing based on what you've seen over the past year?

You're starting with the gross margin, you are right that there are opportunities now to continue given the external factors to move in closer to that normalized interval as we were speaking about. But also reinforcing what Daniel said here is that the product is the most important thing we do. So it's not about short-term sort of increase in gross margin. It's to build a stronger long-term offer. And I think that is then the strongest hedge towards gross margin pressure over time that we take the opportunity now to invest in the product to further then improve our stock availability, reducing the need for sort of clearance markdown and over time, then also through the product, strengthen our brand, the pricing power that will sort of help us to sustain gross margin levels over time. So it's -- for us, it's a long-term journey where we have an opportunity now to both, I think, take steps towards the more normalized gross margin level whilst then continuously strengthening the offer and the product and the value to the consumer. So I think that is sort of the long-term strongest hedge we can do connected to volatility.

The second question was the 10% margin target. And I sort of mechanically see that if we then move into this range, let's estimate that we have another 100 bps if you're in the middle of that range on the gross margin, that takes us then to plus 9% and then -- or like north of 9% EBIT margin. And then connected to what we also call out that we've been showing that we have the ability despite an inflationary pressure in our cost base to have a sort of positive delta in local currencies in how much sales grows and how much our cost base grows. So that is our clear intention to continue that journey. And that over time, of course, with normalized gross margin levels will sequentially then take us closer to the long-term margin targets.

While continuing to have strong collections, inspiring experiences -- excitement around -- with the positive sales momentum to make sure that...

Absolutely.

Very small follow-up on the sales point. Clearly, externally, as we see, there's quite a lot of volatility in the quarterly sales data that you report. I guess if there is something that you can share perhaps in terms of the loyalty data, customer data in terms of transactions or average selling prices items per transaction. Anything you can talk to that is giving you really are firmly on the right track on sort of rebuilding the sales in H&M brand?

If you look back to the year, I think we have been posting growth around 1% to 2% and in that interval consistently through the quarters, which is, as Adam explained in the report and higher level of consistency what we've seen in the past, and we attribute that 100% to more appreciation for our customer offer from customers across the board. And what we see positive is that the customers that we have within our customer base really want to trust us in a wider range of categories. And that means they're referring from trusting us not only maybe on basics where we've been very appreciated or in kids clothes, but also trusting us in their sportswear, H&M Move has performed very well, but also trusting us in other product categories like in dresses, in dresses for occasions and that they widen their spend with us, which we see as a receipt that they are appreciating what we're doing.

So when looking at the customer base, we see that the loyal customer truly want to widen their spend with us. And we see when we perform well and when we deliver strong collections that are really relevant, they are also very keen on sort of deploying a larger share of their wallet with us. That gives us confidence that we are on the right way, but we really are from our own ambitions, just getting started. We do believe there is much more potential to tap into as we move along in implementing the plan, strengthening our foundation to then further accelerate growth as we look ahead.

And I think these clear receipts we see across regions and also over time, each quarter, we have seen the same pattern repeating. So we -- with that, we feel this is a clear trend.

Trend is the right way, but we believe that we have higher ambitions.

The level can be improved.

And our final question comes from Matthew Clements with Barclays.

The first question was on Agentic Commerce. Just wondering how you're positioning H&M in that world. The second question was on logistics. You're talking about new European warehouses that you're launching. Just wondering how you're managing that capacity amid relatively muted volumes and what you're looking for from that new logistics capacity.

And the final one is on the work you're doing in the assortment relative to how that's being -- how the brand is perceived by customers. So obviously, you've done a lot of work over the last 2 years, investing quality, value, stretching out the high end of the price architecture. But have you seen a meaningful shift in how customers actually perceive the H&M brand? And where is the brand now relative to where you would like it to be? And what are the biggest areas of improvement or future improvements?

Okay. I'll try to, and then please remind me if I miss any of the questions. So if we start -- what was the first one? Agentic. Agentic -- yes. It's a very, very interesting area that I believe will drive a big impact on how we meet the customer over time. And then as always, with really new disruptive technologies, the speed of adaptation is difficult to assess. But we know that a large amount of our customers, they want to be better guided in how they make their choices. Fashion is fantastic. It's fun. It's energizing, but not for everyone. It also -- it can be painful and difficult to find what you want to wear and how you want to dress. And anyone who has tried to get a little bit of help of any agentic AI know that it's early, but you can start to see the signs of that you actually get help on how to dress, how to express your personality, how to look good.

So I think it will drive a lot of change. We are looking at it from different angles. We're looking at for how can we apply agentic AI into our own experience. We have seen the first tests that we have done in improving search, for example, applying conversational search as opposed to just normal keyword search, reduces the amount of 0 search results and sort of increase the relevance for the customer. We see a young consumer being more used to the conversational search pattern. That also helps us to apply many more attributes to the product so that the results can be more relevant and more guiding. So we are working on looking at how can we implement Agentic AI into our own digital experience to better serve and guide the customer.

At the same time, we are curiously looking at what does it mean for the customer -- for the consumer journey in what way will they show up to us in the future. How do we make sure that we are present in the journey regardless of where they start the journey. So that is, of course collaborating with Google, OpenAI, with other platforms that are driving that change to see sort of how do we tap into that ecosystem. And that is a very, very, very early stage where there is a lot to be learned and a lot to be seen, but something that we are curious about. And I believe an area where outstanding value for money will become more important than ever that truly our product lives up to standing out from competition when it comes to value. The better the customer becomes of making that assessment, the more important is that we really stand out on the value that we offer in the specific product. So area of big disruption, very, very early stages, and we are exploring it both in our own sort of world, but also in the ecosystem outside of our own channels. Yes.

Secondly, logistics. So the key here is to increase availability. We see an opportunity to create better stock pooling, both in general, but also especially between the channels so that we truly can use our omni presence to drive better availability for our customers so that we can use online stock to serve a store customer, that we can use stores as a stock node to serve online customers, and that's a lot of the work we do when we look at the European network, how can we leverage the total stock of Europe to better serve our European customer in improving the availability while we reduce the total stock levels and increase the precision of the stock that we carry.

So a lot of the work goes into making sure that we have capacity, but especially that we increase availability. And then, of course, that we make -- this is one area where we need to manage the inflationary pressure on costs, and that's also an important work of the logistic investments that we do in Europe. And then thirdly was...

The brand perception...

The brand perception. So we see also that we have taken steps that we get signs that we're moving in the right direction. We get those receipts from customers in the way they act, but also what they say when we ask them in quantitative surveys. But we are not where we want to be yet. We are on a long journey. We are putting the foundations in place. I'm confident that the direction that we have set are taking us towards the right direction, but a lot of the effect of the work that we have started is yet to be seen and a lot of the work that we have not yet started is also yet to be done. So we are starting to take steps, but impact is not yet where we want it to be. We are in 81 markets, and we are changing the perception of a wide demography of customers, and there's a lot of work left for us to be done in that area.

And just a follow up very quickly on the logistics point to say, are you -- how are you managing capacity across the network? Are you moving capacity from old centers and closing those down? Or what's the management of the network?

Right now, we're opening new warehouses to ensure that we have created the -- what we said, the capabilities and the capacities to grow and grow in a way which is then truly then enabling the omni setup we have with stores and the digital store sort of combined and through the customer demand more clearly than served through a more flexible logistic network.

And we work both how we optimize own operated 3PL as well as where we -- how far we go on automation, and that's different depending on sort of the different circumstances. Full strategic network puzzle that we're working on.

We have no further questions.

Thank you for clarifying. And I take it we don't have any more questions in the room either. So with that, thank you all very much for joining today's conference and for your continued engagement with the H&M Group. We wish you a very nice day.

Thank you so much.

Thank you.

Good morning, and welcome, everyone, to H&M Group's Conference Call Nine-Month Report for 2025. [Operator Instructions] Please be advised that this conference is being recorded.

Today, I am pleased to present Joseph Ahlberg, Head of Investor Relations. I will now hand over to our speakers. Please begin.

Good morning, and warm welcome to everyone. Today, we present the third quarter results for 2025 for the H&M Group. I am Joseph Ahlberg, and I'm Head of Investor Relations. Before I hand over to our CEO, Daniel Erver, I would like to share this morning's setup. As usual, Daniel will share a short summary of our results, a run-through of selected highlights from the quarter as well as a brief outlook, then we will continue with a Q&A where Daniel; our CFO, Adam Karlsson; and I, will be available to answer your questions.

So with that, please go ahead, Daniel.

Thank you, Joseph, and good morning to everyone. It's great to have the opportunity to speak to all of you again.

In the third quarter, we continued to take important steps in the right direction. So let me start by summarizing some of the key numbers from the quarter.

The positive sales development continued in the third quarter. Sales grew by 2% in local currencies. And this growth should be seen in the context of having 4% fewer stores at the end of this quarter compared with the same period last year. Our upgraded online store rollout earlier this year has been very well received by our customers around the world contributing to a profitable growth in the quarter.

Inventory continued to develop in the right direction and decreased by 9% in SEK compared with last year, and that's mainly, thanks to an improved demand planning capabilities as well as in combination with the well-executed summer sale. The composition of the inventory is good, and we see further opportunities for improvement in the fourth quarter.

Sales for the month of September are expected to be on par with last year, and this should be seen in the light of high comparative sales figures from the previous year.

We increased our operating profit compared with the same quarter last year, thanks to a stronger customer offer, good cost control, and improved gross margin, where a clear majority of the effect was driven by improvement work in our supply chain, as well as somewhat positive external factors. Additionally, currency exchange effects were positive for the gross margin development in the third quarter. This means that we reached an operating profit for the third quarter of SEK 4.9 billion, and this corresponds to an operating margin of 8.6%, up from 5.9% during the same quarter last year. The increase in profit shows that we are on the right track as we continue to make progress in line with our plan to create fantastic products with outstanding value for money, inspiring experiences and strong brands.

Now we are on the right track, was also reflected in the response we got from customers when H&M opened in Brazil for the first time in August. I had the opportunity to join the team on-site and seeing the pride of our colleagues, the reception in social media and above all, the excitement of customers entering our stores for the first time was absolutely remarkable.

We successfully built on the core of our plan with elevated products, inspiring experiences and a strong brand and combining these strengths with a deep curiosity for the local market.

Please take the time to enjoy a short video from the opening.

[Presentation]

I hope you could feel some of the energy that we felt by being there. And based on this positive reception from our customers and the opportunity in a well-established fashion market, we see good potential to grow both in Brazil and in other parts of Latin America moving forward.

With 2 stores and online already in place, we will open 1 more store in Brazil during this year. Additionally, 4 stores are signed for 2026, all in top locations in important cities, including the first store in Rio de Janeiro.

Another highlight this quarter was the opening of our new flagship store in Le Marais, in Paris, which you can see on the left screen in front of you. This store has an assortment presentation and interior, that is curated for this special location. And this is a great example of how we strengthen the brand, while we are also creating an inspiring shopping experience in one of the world's most important fashion capitals.

We continue to elevate our shopping experience both in stores and digitally, as well as strengthening the integration between both of these channels. As a part of this, we will continue to upgrade a large part of our physical stores worldwide with improvements in layout, presentation and tech features.

In parallel with improving the customer offer, we continue to drive our sustainability agenda forward, and we are making clear progress towards our ambitious goals, as we continue to integrate sustainability into all parts of our business. And this morning, Fashion Revolution released their results from the latest What Fuels Fashion? 2025 report. Out of 200 major fashion brand and retailers, H&M ranks first for its level of public disclosure on decarbonization and other sustainability areas.

Finally, I would like to share 2 great fashion moments from this quarter. First out, COS returned to New York Fashion Week for the fourth year in a row, underlying their ambition to build a global power brand in the accessible luxury category. The strong autumn/winter collection emphasized materials, contrast and craftsmanship.

And last week, H&M opened London Fashion Week by presenting the new autumn/winter collection. The show clearly highlighted the strength of H&M's collections and the creativity of our in-house design teams, featuring both womenswear and menswear. The collection is now available in stores and online with a wide range of price points to cater for a diverse set of fashion needs.

With leading models on the catwalk and many well-known guests in the audience, the show also included a special performance by British music talent, Lola Young, featured here on the right.

While we continue to drive our plan forward, the world around us remains uncertain. With geopolitical challenges and a cautious consumer, it becomes even more important for us to stay focused on what we can influence and where we can make the biggest difference.

Everyone across the entire company stays fully focused on our customer offer to always deliver best and outstanding value for money. In an increasing complex environment, our strong culture, together with good cost control and flexibility, allows us to build a stable foundation for long-term profitable and sustainable growth.

With that, thank you so much for listening in this morning, and I will now hand you over to Joseph to take us through to the Q&A. Thank you.

Thank you, Daniel. [Operator Instructions] So with that, over to you, operator, to facilitate the questions.

[Operator Instructions] The first question goes to Fredrik Ivarsson of ABG Sundal Collier.

You've been talking about the strength in women's collections during the last year-or-so. Can you give us an update on the various performances in the categories during the quarter?

So womenswear continues to be the main priority for us as a company as we make progress on our plan. We're really, really focused to win women first, and that's where we put the most emphasis. And as we shared before, that's a long term work, where we work systematically and disciplined to strengthen the customer offer.

As we shared before as well, we see a lot of the learnings that had an effect on womenswear will be relevant for our other customer groups as well. And sequentially, we start to see an improvement in other customer groups. But the main priority and the main strength still remains the womenswear performance and collections.

Okay. And the second question on cost. OpEx down 1 percentage point or 1% local currency, despite, I guess, top line growth and underlying cost inflation and such, can you share with us the sort of key drivers of the lower OpEx? I guess I recall you spent quite some money on marketing in Q3 last year, for instance, did you reduce those kind of costs or is it anything else in there?

So overall, I think it's important to recognize in this quarter, it's been a tremendous work done by the teams on cost efficiency. And as we continue to invest and have a high activity around strengthening the collections, improving the experience and investing in marketing and branding, we gradually learn what takes an effect or not and then are very disciplined in steering resources and investments towards what really impacts the customer. I don't know, Adam, if you want to shed a bit more light on the cost development?

No, it's -- as you said, Daniel, it's generally quite a broad efficiency improvement we see. We've managed to plan our store operations well connected to how we execute on the summer sale. We see that we have improvements in our logistics efficiency, and that can also see and be reflected in the stock levels coming down, which supports OpEx on the logistics side. And then the overall long-term ambition to reduce complexity and bureaucracy in our organization still supports the margin expansion here. So it's a broad profit improvement from many parts of the operating part.

Okay. So it sounds fairly sustainable then to me, at least?

Yes. We see that we have done long-term improvements and that is one of the benefits, for example, of now improving the management of the stock, and that reflects both in how we operate the stores and also benefits logistics efficiencies. So with that trend, we see that we have a good foundation to continue to be efficient within our operations.

The next question goes to Niklas Ekman of DNB Carnegie.

Yes, can I ask you to just elaborate a little bit about current trading? And I know that this is a short period that it's always tricky. And maybe for just that reason, I know you had 11% growth last year, but minus 10% the year before. Is there anything you can say about weather comparisons, anything about underlying markets? Any tangible improvements to your own collections? Just anything you can -- to shed some more light on this figure, which today at least seems to have been a lot stronger than what consensus had assumed?

Yes. As you already pointed out, it's a number that should be handled with a lot of caution because it is very short-sighted, and we are now in a period, at least in the Northern Hemisphere and especially in the northern parts of Europe, where weather is changing dramatically going from summer into fall, and that has a significant effect on customer demand, while September is a volatile month, and we should be really cautious to manage the number as you point out yourself.

What we have seen is that we saw a good weather development late August, early September, and then we have seen a little bit warmer end of September. So it is a month where the weather really is shifting. When we look at the trend, we see it very much in line with the sales trend that we have seen so far. So we -- there is no significant deviation from the trend that we have seen when we look ourselves at the September performance.

Okay. That's very clear. Second question, just on Q4 here and the guidance that you're giving about the external factors saying that they will be less positive in Q3. And I imagine that, for instance, U.S. dollar and freight should be a lot lower year-over-year compared to the effect in Q3. And you mentioned tariffs here as a negative. So can you elaborate a little bit about these different components here behind the guidance for Q4?

Adam here. It's a balancing effect here that we believe will somewhat neutralize. We see the benefit of the dollar-euro pair working in our favor throughout the spring into the summer and into the autumn. But against that, we have then the impact of the tariffs that will then -- based on the tariffs we paid during the Q3. A lot of those garments will be sold during Q4, and that's when they affect our profit and loss. So there are some counterbalancing effect here. But the effect we speak out as currency, freight and raw materials are still to be seen as somewhat positive.

The next question goes to Daniel Schmidt of Danske Bank.

Yes. Maybe a question on the growth potential. You talk about it when it comes to Latin America, and you seem to be very excited about the start so far in Brazil. Do you think that the expansion plans that you have for Latin America will be able to turn the trend when it comes to net store closures in 2026?

So we are really excited about the opportunity in Brazil, mainly based on how well we have been received by the customers in Brazil and how they have appreciated our offer. But we also see continued opportunity to optimize the store portfolio, and that work is ongoing. For Q4, it will have a slightly negative impact on sales, as we have communicated before. The outlook for 2026, we will share connected to the Q4 report. We're working hard to find opportunities for H&M to continue to be a growth company, and that's part of the work, but the specific numbers of what we'll see, we will share in the fourth quarter when we talk about the total net effect of the optimization work that we will do in 2026.

Okay. But is it fair to say, you mentioned 4 new stores in Brazil for '26, for example, is it likely that there will be many more stores in Brazil than these 4 or are the lead times much longer than you think?

As always, when we work to establish ourselves in the new market, it's important that we establish ourselves in the right locations, and that is really to be in the malls with the right customer demand, in the right location in the mall where we can provide the full H&M experience, and then Brazil is a mature fashion market and retail market, but it's also a well-established market. So it's not new malls being built. It's finding locations in existing very strong performing malls, but it's fine in those locations. And that's the work that needs to balance speed for chasing the potential with quality of building fantastic stores in the right locations.

So when we look at the total portfolio optimization, of course, Brazil will be one key important part, but we also see opportunities in other parts of the world as well as continued need to consolidate part of our portfolio or we don't have the customer demand. So we will come back in Q4 with a more holistic view of how we look at 2026.

Yes. Maybe just 1 question for Adam then. The question was already up on the table, but could you maybe sort of give us a ranking of the impact when it comes to the gross margin of these factors that we've talked about, improved supply chain, internal factors, markdowns, FX?

Yes. I'll try that. The majority of the improvement comes from our own work, so to say, the work that we've been speaking about how we collaborate with the partners in our supply chain, how we leverage that partnership, how we also work all the way down to second and third tier of our supply chain to ensure that we have a very competitive offer in -- that we can put in front of our customer. So the majority comes from our own work. Then we had last year some effects that went against that and those we don't think we will have sort of supporting year-on-year in Q4 as we did now in Q3. So majority will remain. The trend is clear, but some of these one-off effects that we saw during Q3, we don't think will materialize in Q4.

The next question goes to Adam Cochrane of Deutsche Bank.

Well done on the results. Firstly, the markdown was much lower than I think we expected in the third quarter. Can you just say how you cleared the inventory position with less markdown than you were expecting? Did you do anything differently or was it the consumer demand was stronger than expected?

This is Daniel. Starting off, the team has done a great job with how we executed the summer sale. So we were able to solve a lot of stock with us in an efficient way, which is well done on the execution of the teams working throughout our market. We also see with stronger collections that we are in a better situation. We still do see a need -- having a cautious consumer that is squeezed for -- although having a squeezed wallet, we still see a need to use a reduction to activate the customer from time to time, and that's why we still have a fairly high level of activity in Q3 and that will also continue into Q4. So we monitor the cautious customer clearly, and we do activities, but we are stock level wise in a very good situation after well-executed summer sale.

So still on that point, are your collections better and they're selling well? And at the same time you have to do selective promotions in order to get other consumers to spend the money? Is it a sort of mixed impact on the consumers? I'm trying to understand really how you can have better collections that are being received well and you still have to puts some markdowns or promotions in to get other consumers to purchase.

Yes. The work we are doing is a long-term journey to strengthen and build a really strong competitive offer. And to do that, we always need to make sure that we offer outstanding value for money. And that's both in the price and how we work closely with suppliers, as Adam shared, to really offer outstanding value for the price that we charge, but it also is around how we provide short-term offers and activities to really stay competitive. And here, we act differently in different markets, and we monitor the market situation. And we're also looking at the customer base that we have and the ones we're moving towards, and in that play we need to still work with activities and reductions to activate the customer, even though we see gradual strengthening from the full price performance of well-received collection.

And then the second one is you talked about some of the store refurbishments that need to happen and the tech investments and things. What is the scale of these store refurbishments when you go across your existing estate? How much do you have to invest on a store? What's the -- is there any sales uplift that you do from that? And how long will it take you to go across the entire estate to get them into the -- to put these investments into each store?

We're working across the entire portfolio with the different levers to build a really competitive experience. Sometimes that's a full rebuild of a store. We have done that, for example, Times Square is a good example of a full complete rebuild of a store in New York, and we have many others. And then based on those rebuilds and our updated formats, we find components that we believe are good for strengthening the experience, the service, the customer offer in a wider part of the portfolio. And then we, with a lighter program, rolled that out to a wider set of the portfolio, and that's the work that we're mentioning in the report that is starting now and that will reach sort of at the lower investment level, but with improvement -- important improvements for the consumer it will reach a wider part of the portfolio, and that's a work that we are initiating now that would happen in the fourth quarter, but then also moving into 2026.

Think it will be completed by the end of 2026?

No, it's an ongoing work. We have almost 4,000 stores, and we always need to make sure that we are competitive in each location. So it will be an ongoing work of optimizing and improving the experience.

The next question goes to Warwick Okines of BNP Paribas.

First question is on tariffs in the U.S. I was just wondering what sort of proportion of the goods sold in Q3 were actually bought in the tariff regime? What was sort of pre and post tariff purchases?

Adam here. It's varied throughout the quarter. So what we call out here is that we've seen an increase throughout the quarter, and we believe that increase and the effect will sort of become fully loaded towards the end of Q4 and then into Q1 next year, given, of course, the uncertainty of the exact tariff level. So we're not giving any guidance on those, but it's just when the goods were imported and when they were planned to sold. So it's an increase throughout third quarter that will be potentially fully loaded end of Q4 and then continue as far as we know currently then into first quarter next year.

And on those products, when they are sold with tariffs, have you made any price adjustments to reflect that or is your gross margin commentary just reflecting that you're taking all of the tariff impact yourself?

They are of course linked, but they're also, separate those questions. And we need to ensure that we have the right customer offer at all times and we respond to how the consumer and the competitive set is looking. So the gross margin comment right now, it's more on the sort of the consequence of us importing garments with tariffs and a higher portion of garments that has been imported with tariffs will be sold in Q4.

And if I may just squeeze in 1 more. Just sort of clarify, you talked -- when you talked earlier about Q4 guidance on gross margin, you talked about sort of balance effects that were somewhat neutralized. Does that mean you're expecting tariffs to largely offset the other benefits in the gross margin in Q4?

Thank you, Warwick. This is Joseph speaking. Of course, we still guide for a net slightly positive effect from external factors as we write here in the report. So that is taking all these effects into consideration, but we do indicate that the net effect is slightly smaller than it was in the third quarter based on our judgment connected to the sort of -- sorry, headwind becoming a bit more negative than from the tariffs, which -- to the technical effects Adam just pointed out.

The next question goes to James Grzinic of Jefferies.

Congratulations on the spring/summer. I had a couple of questions really on gross margin. The first one is, can you perhaps remind us what the FX loss that impacted Q3 last year was, specifically, so that we can maybe take it out of the 180 basis points increase year-on-year that you just delivered?

Thank you, James. Joseph speaking. Yes, last year, we called out the negative FX effect as a factor explaining the gross margin development, meaning it was one of the significant factors that explained the development. This year we see those effects becoming positive instead. So with a negative effect in the comp base and the positive effect this year, the net effect then becomes positive to the year-over-year gross margin development in the third quarter. Now looking ahead, we don't expect these FX effect to give a significant year-over-year effect to the gross margin development in the fourth quarter when looking at the comp base of last year for the fourth quarter. But then again, we cannot make predictions, of course, on the FX development, but the outlook is more neutral for the fourth quarter presently.

I guess I just wanted to exclude the fact that there were exceptional charges that fell last year due to FX. So you're just referencing the ongoing impacts of contracting in dollar, basically, just to clarify that?

Yes, so when it comes to the FX effect is what we described last year, part of it is exchange rate losses on intergroup liabilities and receivables. And so it's the FX movement in the quarter. But again, it's important to stress that a clear majority of the increase in the gross margin comes from the improvement work we are driving in the supply chain and the somewhat positive external factors we saw in the third quarter. So we remain as a -- as a robust trend also for the fourth quarter.

Understood. Can I also ask, I appreciate the point on the theoretical dilution from gross tariff impact. But one of your peers in the U.S. has talked about moving considerably on pricing a couple of weeks ago and that was happening at a point where everybody in the space seem to have been doing exactly the same immediately post back-to-school being over. First of all, can you confirm that you are also observing that, that there's an industry in the U.S. that is clearly back-solving for those tariff costs through accelerating price increases? And how do you intend to move if indeed you're also observing that or if you -- indeed, you've moved at all?

So we are done here. We also recognized and observed that there are price increases happening in the market in the U.S. in -- as a general statement, we see the same thing. And we are monitoring those developments closely to make sure that we offer a really competitive offer. We are cautious and prudent about the development in U.S. for the fourth quarter given the effects that Adam spoke about that we see that we have already paid tariffs on the garments that have imported and those garments will be sold in the fourth quarter; hence, we will see a bigger impact of tariffs on the gross margins. And while we see that on the one hand, on the other hand, we are continuously looking at how do we have a competitive offering and how do we optimize our pricing position and that we do in the U.S. as we do in all other markets, and that leads to both price decreases and price increases to stay competitive, and that's an ongoing work. But we are cautious about looking at the Q4 development in the U.S. given that we know we already paid tariffs that would impact the gross margins as we look into the fourth quarter.

The next question goes to Richard Chamberlain of RBC.

A couple of points of clarification, please. Just back to the comments you made about markdowns, expecting a higher -- somewhat higher impact for Q4 as a result of -- partly as a result of the Black Friday timing shift. Would you expect that timing impact to reverse fully in the first quarter? That's my first question.

So that's correct. You see that specific shift, we will reverse in the first quarter, but we don't give any guidance for reductions in the first quarter. That would be dependent on how well our collections are being received during the autumn as well as the consumer sentiment as we head into the first quarter. So just that specific effect will be shifted, but we don't have a guidance for the first quarter at this point in time. We will come back to that when we meet for the fourth quarter report.

Okay. Great. Very clear. And my second one was on the -- when you're talking about the supply chain in the statement, you talk about a more flexible supply chain with a higher share of purchases made in the current season. But at the same time, you're planning for extended transport times. I just wondered how that's influencing your thinking about how much inventory you need to have now in the business and how that will affect your sort of working capital profile in the fourth quarter?

Adam here. If I start with the transportation lead time, we still see that the negative effect we saw during the autumn of 2023 still persists. We cannot sail the shortest route between sort of supply chain in Asia, customer in Europe. So that still persists. And then within those guardrails, we try always to optimize both the design lead time, how we buy and source the mix of that and of course, how we ultimately secure that we are responsive and flexible throughout the supply chain. But that is what we call out. That sort of shift when it comes to transportation lead time. That has not -- that we're still seeing and observing that we're not sailing the shortest route. So that's what we call out. It's not worse than it's been, but it's not obviously a lot better either than the last 18 months. But then on the responsiveness on the suppliers here and how we collaborate them. Daniel?

And then as an really important part of how we strengthen the product offering and making sure that we have the most competitive product offering, we are working on how do we increase the speed and reaction time in our supply chain. And that's a wide work that includes both, as we mentioned before, how we move production closer to the customer with what we call nearshoring or proximity sourcing, but it's also working with a set of suppliers that can be much quicker and where they can support with a larger part of the product development process, for example, it's working early on and preparing components to be able to do the design decisions at a later stage still being quick. So it's a broad spectrum of activities that we do where nearshoring is one, but not the only one. We also work a lot with how we collaborate with some of the best suppliers in the world to really speed up our supply chain. And that's how we build up higher responsiveness and can buy more in season, which creates better position and also more relevance for our customers.

The next question goes to Monique Pollard of Citigroup.

Two questions from me. The first one is just on the space impact in quarter. So obviously, as you mentioned, 4% fewer stores versus last year. But obviously, you'll be closing stores that are less productive, you might be opening larger stores. So what's the overall contribution to sales of that 4% fewer stores?

Monique, this is Joseph. So in this year so far and also expected for the full year, we do see somewhat negative net contribution to selling. So adjusting for this effect, we would see a slightly higher top line development for both the third quarter and expected for the full year.

So that impacts quite a bit less than the minus 4 of the stores presumably?

That is correct, Monique. We do close low productive, low profitability stores and open the best possible stores, looking in every corner of the world for the best expansion opportunities.

Understood. And then just a quick one on the marketing cost. Is it possible to quantify the marketing costs that were incurred in the quarter versus the -- I think it was about SEK 350 million last year, please?

So we're keeping a very high activity when it comes to how we strengthen the brand and how we create excitement around all the brands in the portfolio, like the cost show we show, but especially with the focus on the H&M brand, where we continue to invest and have a high activity level. A great example is the Brazil opening where we used the opportunity for H&M entering Brazil as a global event to strengthen the relevance around the brand. And also, of course, the show we did in on London Fashion Week last week, that was a really strong statement of putting our own collection on display and sort of building excitement around that. So the activity remains. And as we have increased activity over the last 12 months, we also learn a lot of where we can find efficiencies and be more disciplined to steer investments that have a significant improvement and really break through all the way to the customers. And that's the ongoing work. We want to send a clear signal that the activity level is high. We believe a lot in strengthening the brand as part of our journey, but we also find efficiencies where we can really focus around the things that really makes a difference.

I don't know, Adam, if you want to shed a bit more light on the development.

No. I think it reflects what we said that we had an autumn last year of sort of a restart of investing like an overall broad investment in brand and that ambition stays, but we believe that we can find clever ways to get the same and more effective in other ways. So I think that is partly reflected in the Q3 result here where we optimize the resource use and still, as you said, have a very high ambition and engage with a lot of customers all around the world.

The next question goes to Georgina Johanan of JPMorgan.

Just 2 questions from me, please. First of all, just in terms of all of the underlying work that you're doing with the supply chain and going through the different supply tiers. I appreciate you're doing sort of more nearshore and can be more reactive and so on. But at the same time, you've obviously talked about markdowns continuing to move higher. So I assume that you are actually achieving sort of better buying with those suppliers, if you like. And I think by the end of this year, you're probably close to some 200 basis points or so cumulative. So just trying to get a sense of how far through that process you are because just from a high-level perspective, 200 basis points is already a great achievement in that regard.

And then second question, I think you mentioned in the release around how the digital business is contributing strongly to profit growth at the moment. And I just wondered if that was coming from like the incremental sales that you're generating or actually if there's any initiatives that's been done, particularly around logistics or anything else in the digital business that is supporting that profitability, please?

Georgi, first question I can answer. This is Joseph. So on the supply chain, we are really driving several initiatives at the same time. We, for instance, have been talking about the work we do working closer with our strategic suppliers. This has been where we have consolidated the supplier base to work very closely with a shortlisted number of strategic suppliers who now stand for a big share of our total order value. And these suppliers, we work very closely with them, open book costing and so on to really make sure that we can deliver on our business idea with really high quality, good sustainability commitments and the right fashion and, of course, at an unbeatable value for the money.

In parallel to this, we are ramping up this work that Daniel talked about earlier with collection suppliers with their own product development capabilities where our own design team work very closely with these suppliers design teams to very quickly turn around new design ideas to ready products reaching our customers. So that is also being ramped up at the same time as we are sort of on the other part of the supplier base and working closely with the strategic suppliers. So I hope that clarifies the sort of 2 directions we're driving in parallel.

And when it comes to -- yes, the second question, I hand over to Adam.

Or did you have a follow-up question? Sorry.

I was just going to try and understand if possible sort of -- because that makes a lot of sense, but just how far through that process you were and whether we should be expecting comparable gains into a third year?

Yes, we do see that the -- if we take the collection buying sort of the in-season buying has been growing steadily. The share has been increasing over the past years. So now we are achieving a fairly high share for selected categories of products like light woven and so on.

I think looking at the 2 different, as Joseph clearly explained. So I think the work when it comes to optimizing the way we collaborate with our suppliers on the costing models, the consolidation and so on, we have come fairly far in the work, and that's given a lot of support to the gross margin. And we think we are not done, but we're far on that journey. When it comes to increasing the pace of product development, buying more in season and speeding up the relevance to market, we have taken the first good steps, but there's still a lot of steps to be taken on that journey and how we speed up and become more relevant.

I think to try to guide on the question, we have come quite far on the improvements of how to consolidate and build stronger gross margins. That work will continue, but we're far along. When it comes to increasing the speed and pace and buying more in season, we're more in the beginning with some great first steps on that journey.

And then I think there was a question about the broad cost sort of activities we drive. And I think that can also be seen in 2 parts. One is the effects on the -- sorry, Daniel.

I think the question was around digital, the updated digital store and the sort of what has been...

Was a long time ago we got the question. Repeat the question.

Georgi, would you like to repeat your second question?

Yes, it was just -- I think you mentioned in the release that the digital store has been contributing strongly to profitability improvements. And I just wondered if that was simply coming from more sales in the digital store or if actually there were specific initiatives around maybe logistics or what you're spending on tech or marketing or whatever it was in the digital channel that was particularly supporting profitability improvements.

When it comes to the digital development, both the sales team and the tech team has done a great job with -- including our creative teams to take the -- sort of provide the imagery and build up the experience. All of that has significantly improved with the rollout of the new optical experience that was sort of concluded at the end of the spring to all our markets where the experience really, really elevates the product offering and elevating the product offering with a stronger product offering and stronger products, that builds an even stronger value for money, and we see that is being really well received by the customers. So that combination of a great product offering where we have improved the design, the product development, the making, the material choices, combined with more inspirational imagery, better flow, better search functions, better size recommendation, that in combination has driven a strong comp sales development, and that's a tremendous job done by our teams.

Then we see that -- we continuously look at the customer promise and the different offers that we have and how we provide a competitive experience. And actively and connected working on how can we reduce the return rate given that we don't want neither for the stock management nor for the planet and our sustainability targets, it's good to have high levels of returns. And that's also work that had a good progress during this quarter where we managed to lower the returns, which we see as very positive for both profitability, but as well for our climate impact. So those are the 2 things for this quarter.

[Operator Instructions] And the next question goes to Sreedhar Mahamkali of UBS.

Most of them are already asked, but I just got a follow-up from James' question on tariffs and another small follow-up on something else that was discussed. Just on tariffs, how are you thinking -- I understand your point about watching the market, watching the consumer. Are you planning to follow your key competitors that you're watching? If they move, you move, what sort of kind of time delays that we should be thinking about? Clearly, it would be a persisting headwind if you didn't adjust pricing into next year. How should we think about it? What sort of time delay? How do you think about it? That's the first one. If you can just expand a little bit more, that would be very helpful.

And a little bit more short term into Q4 on OpEx. Is there anything we should keep in mind in local currency changes in OpEx? Or is Q3 development of 1% reduction in SG&A a good indication for Q4 also?

Thank you for the question. I'll take the first one, and then Adam will take the second one. We are in all our markets, monitoring the price development and how this -- I mean we have many markets with quite significant inflation where we continuously adjust prices based on the market competitive situation that we do in the U.S. as well, which leads to both price investments and price increases. And we see a general sort of gradual increase in the market. With that said, we always want to protect that we have a competitive customer offer and offer the best value for money, why we are cautious about Q4, where we already now know based on the tariffs that we paid in the third quarter that they will impact the gross margin. So we will evaluate. We are assessing the strength of our collections and sort of making sure that they are positioned with a competitive price. But of course, when we are paying increased tariffs, it will have an impact on our gross margin.

And I was trying to understand, you're not trying to increase your price gaps. You're trying to keep the price gaps where you want them to be but look to move over time rather than...

Broadly, yes. But in that, there are always -- sorry. Go ahead.

No, go ahead, please.

Broadly, that's a fair statement, but we always find opportunities as we look at the competitive situation and our product offering in making changes both up and down. But broadly, that's the direction, yes.

And on the OpEx side, I think we spoke about 3 effects that we believe are fairly sustainable. But for Q4, I think one can see that the store operations efficiencies and also the logistics efficiencies are likely to remain a little bit more caution on the marketing advertising side as we -- last year, when we relaunched the brand, we had quite a lot of costs connected to marketing during Q3 that were not there this year. So a little bit less positive impact on the marketing side for fourth quarter.

The next question goes to Matthew Clements of Barclays.

Most of my questions have been taken, but I thought I'd maybe zoom out a little bit and focus a little bit less on the long term. Just wondering, when you look to some of your benchmark peers, where do you see on cost the biggest and most exciting opportunities going forward? And could you highlight a few areas of initiatives that it's in-store efficiencies, RFID, self-checkouts, et cetera, or in logistics, automation, et cetera? What are the opportunities where currently H&M is underperforming where you think there's a scope basically to catch up and equalize?

It's a broad and very interesting question that we work with. I think one clear view is that as we work on strengthening our customer offer and really being competitive in offering outstanding value for money, one key piece will be to increase store productivity and increasing the sales per square meter and store productivity is an important way to sort of balance the cost base because many of our costs are not fixed or are fixed. So when we drive productivity gains, we drive a better profitability. So I think that's one important scope where we see compared to some of the best peers that there is potential for square meter productivity. And that links, of course, very closely to both the experience, but especially to what we put into the store and the product offering, which is priority #1, 2 and 3 for our entire organization. So that's one important piece.

I don't know, Joseph, if you want to elaborate on other cost?

Certainly, we have taken good steps on the inventory productivity over the past 2 quarters. We have stock composition, which is good, where we are slightly lower on the number of pieces versus last year. So this is also, of course, an area where some of our competitors are slightly ahead of us still, and we have long-term targets, which are more ambitious than the levels we currently have. So this is, of course, an area also that will help us generate a lot of operational efficiencies as we approach these targets.

Just a follow-up on the inventory point. What are the key kind of initiatives at the moment? I mean kind of maybe some of your peers might talk about RFID reducing stock management time, visibility through the supply chain, et cetera. What are the kind of areas where you think you can work on over the next couple of years?

This is Daniel. I'll start. One important area is to have a really, really competitive product. And a big part of what we spoke about with creating speed and flexibility in the supply chain is one key enabler of making sure that we have a very good quality, relevant product as well as strengthening our design teams and really sort of celebrating that know-how and those design team, both with competence, but also with the tech features to help them do efficient, really relevant design. So that's one important piece.

We see with the use of RFID as we start to increase the precision and have real-time data, what we carry in all our different locations, physical stores, warehouses and so on, we see a lot of opportunities for optimization where we can offer better site availability at a lower stock level and having less safety stock to still have a very strong site availability. So here, we're excited about the opportunities as we start to roll out RFID at a broader scale. And then we work actively with the teams on improving the demand planning. So using all the data we have in a more efficient way to be more precise how we forecast the demand and then work actively with improving the supply to be precise to that demand, which also then helps us to come down in stock levels. And that's one -- that work that's been done over the last year that shows effect in this quarter, lowering the stock to sales ratio while we're actually increasing availability to the customers. Those are a few of the examples.

Okay. That's very helpful. And then maybe one near-term question on regional performance. Just looking across your key markets, are there areas where you're particularly happy with performance, areas where you think there's room for improvements and weakness? Just interested on that front.

If you look at this quarter, it's a quarter of quite even performance across the markets, where there's -- we believe there are opportunities in all markets, but there's no one single one sticking out in particular for this quarter. It's quite even performance across the geographical regions.

The next question goes to William Woods of Bernstein Societe Generale Group.

The portfolio brands were soft relative to the overall group this quarter and have slowed down on a pretty easy comp. What's driving the weakness in the portfolio brands?

Adam here. One of the effects that we see is that, of course, the decision to close Monki as a physical store concept. So we also highlight then that we have within the portfolio brands about 10% fewer stores. So that is one isolated main effect and connected to the closure of Monki stores.

And I think worth calling out is we see strong performance in costs, really continuing to build a very strong position in the market and building excitement around the brand, which we have seen with both the list rankings over the last 6 months as well as the reception of their fashion show in New York, which was really well received. So I think that's worth a call out. We also see our youth concept weekday performing well and having a good quarter and a good year so far. So that's on the positive side worth calling out.

There are no further questions at this time. I will now return the call over to Daniel for any closing remarks.

Thank you so much, and then thank you very much to all participating in this conference call. Thank you for listening in, and we wish you all a continued great day. Thank you from Stockholm.

Thank you. This now concludes today's call. Thank you all for joining. You may now disconnect your lines.