Fashion retailer H&M’s (HMb.ST) shares hit a 16-month high on Thursday after its second-quarter profit beat estimates as cost-cutting measures started to bear fruit and its summer collection benefited from warmer weather in Europe. H&M, the world’s second-biggest apparel group behind Inditex owner Zara (ITX.MC), said a program to save about SEK2 billion ($208 million) annually had begun to show results as of the end of the second quarter, and other effects were expected in the second half. Its margin target of 10% in 2024 was maintained. Rising raw materials and freight costs hurt the margin, which fell 8.2% in the second quarter from 9.2% a year earlier.

Nevertheless, sales growth, expected to slow to 1% this month after warm European weather led to lower till receipts in some markets, improved. H&M said like-for-like sales in local currencies grew by 11% in June, July, and August, boosted by higher temperatures in some of its main markets.

The company, whose adverts feature models such as David Beckham, also said markdowns were low and that its inventory position had improved. The company said that its stock levels stood at 16.7% of its rolling 12-month sales as of May 31, well below the 19.2% seen a year earlier.

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“We are focusing on improving our offer and continuing to develop our operations, which will lead to better performance in the long run,” Chief Executive Helena Helmersson said in a statement. “In the short term, we are seeing a positive development in our sales and margin, partly due to cost-saving actions starting to take effect.”

But H&M’s challenges remain. Its inventory levels have weighed on earnings in recent periods, while its cost-cutting efforts are expected to increase the price of clothes sold by 2020. And H&M, also working to reduce its environmental footprint, faces a challenging competitive environment as fast-fashion giant Shein takes market share with less expensive clothes made from cheaper fabrics.

Analysts believe that H&M can regain its competitive edge with a mix of investments in new technology, such as digital ordering and production systems, and a push into higher-priced segments. These would appeal to shoppers less vulnerable to the rising cost of living and shoppers who are keen to buy H&M’s more sustainable products. H&M has also diversified its business by acquiring brands such as COS and Weekday. Its portfolio has about 20 labels, including the namesake brand, Arket, Monki, and Cos. The company’s flagship brand is one of the world’s most popular, selling over a billion items yearly. It is available in over 90 countries and operates over 3,000 stores. The company has an estimated value of $26 billion.