STOCKHOLM, Sweden: H&M's bid to refresh its image with trendier styles and celebrity-backed campaigns is beginning to pay off, with the Swedish fashion giant reporting a 40 percent surge in third-quarter profit that beat market expectations.

Shares in the world's second-largest listed apparel retailer jumped 10 percent on September 25, hitting their highest level in nearly a year after the company said operating profit for June through August rose to 4.91 billion Swedish crowns (US$523 million) from 3.51 billion a year ago. Analysts polled by LSEG had expected 3.68 billion crowns.

CEO Daniel Erver, who took charge in January 2024, has been repositioning H&M against fast-fashion rivals Zara and Shein by tightening costs and making the brand more appealing to shoppers. The company recently recruited pop stars Charli XCX and Tyla for campaigns and staged its first catwalk show since 2018 at London Fashion Week.

"We are taking further steps in the right direction," Erver said the same day.

Despite strong autumn sales, Erver warned that U.S. tariffs could weigh on margins and dampen consumer demand in the quarter through November. "We are cautious about the U.S. heading into the fourth quarter, both connected to the impact of tariffs on the gross margin but equally also the consumer sentiment," he told Reuters.

The U.S., H&M's second-largest market after Germany, accounted for 13 percent of group sales last year. While rivals are raising prices, Erver said H&M would take a "prudent" approach, holding entry-level prices for basics and children's wear while lifting prices only where consumers are willing to pay more.

H&M said inventory fell nine percent in the latest quarter, with more customers buying products at full price in season rather than waiting for discounts. Analysts at JP Morgan and Alphavalue welcomed the move, though markdowns are expected to rise somewhat in the fourth quarter as Black Friday falls a day earlier this year.

Sales in reported currency slipped to 57.0 billion crowns from 59.0 billion, slightly above forecasts of 56.8 billion. H&M said local-currency sales in September are expected to be flat compared with a particularly strong year-ago period.

H&M, which caters to a more price-sensitive customer base than Zara, has faced pressure in recent years as global uncertainty and higher living costs strain household budgets.