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Operator: 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.
Joseph Ahlberg: 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.
Daniel Erver: 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]
Daniel Erver: 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.
Joseph Ahlberg: Thank you, Daniel. [Operator Instructions] So with that, over to you, operator, to facilitate the questions.
Operator: [Operator Instructions] The first question goes to Fredrik Ivarsson of ABG Sundal Collier.
Fredrik Ivarsson: 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?
Daniel Erver: 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.
Fredrik Ivarsson: 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?
Daniel Erver: 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?
Adam Karlsson: 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.
Fredrik Ivarsson: Okay. So it sounds fairly sustainable then to me, at least?
Adam Karlsson: 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.
Operator: The next question goes to Niklas Ekman of DNB Carnegie.
Niklas Ekman: 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?
Daniel Erver: 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.
Niklas Ekman: 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 Karlsson: 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.
Operator: The next question goes to Daniel Schmidt of Danske Bank.
Daniel Schmidt: 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?
Daniel Erver: 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.
Daniel Schmidt: 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?
Daniel Erver: 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.
Daniel Schmidt: 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?
Adam Karlsson: 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.
Operator: The next question goes to Adam Cochrane of Deutsche Bank.
Adam Cochrane: 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?
Daniel Erver: 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.
Adam Cochrane: 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.
Daniel Erver: 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.
Adam Cochrane: 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?
Daniel Erver: 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.
Adam Cochrane: Think it will be completed by the end of 2026?
Daniel Erver: 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.
Operator: The next question goes to Warwick Okines of BNP Paribas.
Alexander Richard Okines: 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 Karlsson: 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.
Alexander Richard Okines: 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?
Adam Karlsson: 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.
Alexander Richard Okines: 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?
Joseph Ahlberg: 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.
Operator: The next question goes to James Grzinic of Jefferies.
James Grzinic: 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?
Joseph Ahlberg: 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.
James Grzinic: 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?
Joseph Ahlberg: 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.
James Grzinic: 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?
Daniel Erver: 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.
Operator: The next question goes to Richard Chamberlain of RBC.
Richard Chamberlain: 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.
Daniel Erver: 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.
Richard Chamberlain: 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 Karlsson: 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?
Daniel Erver: 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.
Operator: The next question goes to Monique Pollard of Citigroup.
Monique Pollard: 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?
Joseph Ahlberg: 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.
Monique Pollard: So that impacts quite a bit less than the minus 4 of the stores presumably?
Joseph Ahlberg: 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.
Monique Pollard: 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?
Daniel Erver: 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.
Adam Karlsson: 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.
Operator: The next question goes to Georgina Johanan of JPMorgan.
Georgina Johanan: 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?
Joseph Ahlberg: 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.
Adam Karlsson: Or did you have a follow-up question? Sorry.
Georgina Johanan: 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?
Joseph Ahlberg: 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.
Daniel Erver: 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.
Adam Karlsson: 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.
Daniel Erver: I think the question was around digital, the updated digital store and the sort of what has been...
Adam Karlsson: Was a long time ago we got the question. Repeat the question.
Joseph Ahlberg: Georgi, would you like to repeat your second question?
Georgina Johanan: 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.
Daniel Erver: 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: [Operator Instructions] And the next question goes to Sreedhar Mahamkali of UBS.
Sreedhar Mahamkali: 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?
Daniel Erver: 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.
Sreedhar Mahamkali: 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...
Daniel Erver: Broadly, yes. But in that, there are always -- sorry. Go ahead.
Sreedhar Mahamkali: No, go ahead, please.
Daniel Erver: 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.
Adam Karlsson: 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.
Operator: The next question goes to Matthew Clements of Barclays.
Matthew Clements: 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?
Daniel Erver: 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?
Joseph Ahlberg: 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.
Matthew Clements: 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?
Daniel Erver: 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.
Matthew Clements: 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.
Daniel Erver: 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.
Operator: The next question goes to William Woods of Bernstein Societe Generale Group.
William Woods: 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 Karlsson: 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.
Operator: There are no further questions at this time. I will now return the call over to Daniel for any closing remarks.
Daniel Erver: 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.
Operator: Thank you. This now concludes today's call. Thank you all for joining. You may now disconnect your lines.