Shares of Swedish fashion retailer H&M surged on Thursday after the company reported stronger-than-expected third-quarter results, signaling that its ongoing turnaround efforts are starting to deliver meaningful progress.

By mid-morning in London, the stock was up 8.3%, retreating slightly from earlier highs. The upbeat reaction came as H&M announced a 40% year-on-year increase in operating profit, reaching 4.9 billion Swedish krona ($522 million). This figure surpassed analysts’ expectations of 3.7 billion krona, according to an LSEG poll.

Net sales for the quarter ending in August totaled 57 billion krona, slightly above the 56.8 billion projected. The results mark H&M’s second consecutive quarter of exceeding market forecasts, a positive sign that CEO Daniel Erver’s restructuring strategy is gaining traction.

Over the past few years, H&M has lagged behind major competitors such as Inditex, the Spanish parent company of Zara. In response, Erver has focused on tightening operations and revitalizing the brand. The company has emphasized cost efficiency through store closures, redesigns, and digital transformation, while also refocusing on its most popular core products.

“By strengthening our customer offering, improving our gross margin, and maintaining strict cost control, we have significantly boosted our operating profit,” Erver said in a statement released on Thursday.

H&M also noted encouraging momentum heading into its fiscal fourth quarter. Early feedback on its autumn collections has been positive, with September sales expected to remain in line with the same period last year.

However, the company warned that U.S. import tariffs are expected to reach their full impact by late in the fourth quarter and into the first quarter of next year. This could put upward pressure on retail prices in the U.S. market.

Erver emphasized that H&M would approach any price adjustments cautiously, raising prices only where consumers demonstrate a willingness to pay more. He noted that while inflationary pressures persist, the company aims to remain competitive and sensitive to shifting consumer sentiment.

Overall, the latest results suggest that H&M’s disciplined turnaround plan is starting to pay off, positioning the retailer on a more stable path toward profitability amid ongoing global economic challenges.