H & M Hennes & Mauritz AB (publ) (HMB) Earnings Call Transcript & Summary

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 1x 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 [indiscernible] 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 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... [Presentation]

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. 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 to say. 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 potentially 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 quickly 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] And 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 of the store. 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 -- 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 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 talent 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 that we mentioned. But if I should call out, 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 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 assortments. 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 -- why we did not reach the ambition for sales that we have set 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 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 [indiscernible], so to say. So that is a continued effort.

Your 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 has 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?

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 that's one area we're looking at. Another one is, as Ada 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. 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 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 product. Do 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. So we see customers coming to us for also the sort of high functional athletic types that have a higher price point or they come to us for -- seen 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 4.99 ]. 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. A 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 a -- 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 in the last 2 weeks, there's been a big interest around most summerish 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 then I 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 reap the rewards of the more effective inventory and then getting the benefits of normalizing the commercial aspects of markdowns and remaining on the lowered sort of stock solving aspect of the markdowns.

Thank you. 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. I'll 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 you 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.