Pandora A/S Ord

Good morning, everyone, and welcome to the conference call for Pandora's third quarter results for 2023. I'm Bilal Aziz from the Investor Relations team, and I'm joined here by our CEO, Anderson Olatik, CFO, Anders Boyer, and the remainder IR team. As usual, there will be a Q&A at the end of the call. If you could kindly limit yourself to two questions, that would be great. Please pay notice to the disclaimer on slide two and turn to slide three. I will now turn over to Alexander.

Good morning, thank you Bilal and welcome everyone. First, let me begin with some key highlights from the third quarter. We're very pleased that delivering a strong quarter. This once again demonstrates how the Phoenix strategy is coming together to really drive strong growth. The organic growth ended at plus 11 and are like for like accelerated to plus 9 in the quarter. We can clearly see that we've got good brand momentum from the various initiatives we're implementing and we are therefore attracting new consumers into the brand. You'll notice that the like-for-like growth was broad-based across our collections and most of our markets. Once again, the P&L structure remains highly attractive. Our gross margins have now reached an all-time high of 79%, driven in part by our efficiency gains and pricing actions. This all still feeds into a solid EBIT margin and a very attractive cash profile. To put this all together, the Phoenix strategy is working and we can see that directly through attracting new consumers. Our business model means we can capture all of this value to generate significant value for our shareholders. Now let's move to slide four, please. Considering the progress we made so far this year and our outlook, we're changing our revenue guidance. We now guide organic growth at plus five to plus 6% compared to the previous one at plus two to plus five. Our EBIT margin guidance remains unchanged at around 25. We are firmly on track for this despite continued investments into our business to drive future growth. Now I'll give a few quick words on current trading. We started Q4 well. In the first six weeks, our underlying like-for-like trading is up high single-digit percentage levels versus the same period last year. This is a good start. We should also keep in mind that the majority of Q4 revenue is accounted for by November and December. So in that context is a smaller sample size. We look ahead with confidence, but naturally would expect trends to moderate a bit as we head into the holiday season, where it's typically more competitive from an external standpoint. Now let's move to slide six, please. As most of you are aware, last month we hosted a capital markets day in London, where we laid out our plans for the next three years. Before I dive into the third quarter, I just wanted to remind you of some of the key details we shared. We highlighted that we will be taking the Phoenix strategy to the next level as we look to change the perception of Pandora into a full jewelry brand. Tied to this, Pandora is setting up for accelerating growth ahead. Doing what we've done over the past two years is working, but we are now ready to unleash the potential of the brand and think that we can take this even further. Going after these growth opportunities will mean increased investments. Despite this, we still expect to see EBITDA margin expansion. The business, as ever, will continue to generate a significant amount of free cash flow, with the vast majority of this returned back to our shareholders. These three points I've just mentioned all will translate into mid to high-teens EPS growth into the future. So that's the Pandora business model in a nutshell. Solid growth, high margins, highly cash generative and high earnings growth. Next slide, please. Here you can see how everything I've said translates into numbers with our new three years targets. We're targeting seven to nine percent organic growth, of which four to six will come from like for like with a range of current and new initiatives. This will be complemented with three points of network growth, which is a predictable and highly value-creative revenue stream. For EBIT margins, we will look to balance out investing into the business versus driving operating leverage, but see overall margin expansion, as I mentioned. Specifically, this translates into 26% to 27% EBIT margin by 2026. Finally, given the expected free cash flow generation, we expect to return between 14 and 17 billion Danish kroner of cash back to shareholders over the next three years combined. Next slide, please. Now, this brings me nicely onto how we will be achieving the targets and in particular driving growth. You should all be familiar with this Phoenix wheel by now, with the four strategic pillars that built the foundation of our strategy. At the CMD, we laid out many initiatives across the four pillars. And I will certainly not go through them here one by one, but instead just highlight the breadth of initiatives we have. From restaging the brand early next year to expanding it to new design aesthetics and continuing to drive growth across all our markets. The message is simply that we have a lot of growth opportunities across the strategic pillars. As I said, some of the initiatives are already having a positive impact. So in that point, let's dive deeper into how we drove brand heat in the third quarter. Next slide. So we spoke at great length a few weeks back on how our brand strategy centers on bringing more consumers into the Pandora brand and how we would now become unmissable. Quarter three is a great example of how that comes to life. Our strong like-for-like growth was driven in large parts by various brand activations across the quarter, which in return drove a large increase in traffic into our stores and e-commerce. And as I've always said, once we get the traffic, the rest is far simpler as we're really good at converting. For the quarter, we were present across many big events. Our Diamonds launch campaign in New York was part of New York Fashion Week and saw wide-scale reach. We then were also present across other fashion events in Copenhagen and Paris, to mention a few. It therefore shouldn't come as a huge surprise that these efforts are paying off in such trends. And some of you may have noticed that Pandora was the most searched jewelry brand globally. And of course, we continue to dial up our desirability through engaging our new brand ambassadors. Next slide, please. Alongside all efforts in being unmissable, we had a particularly strong quarter across our social media activations. You can see on the slide some KPIs we have given, but we know how to remain culturally relevant and drive good brand heat. Some of these trends won't be repeatable every quarter, but we have a multifaceted marketing strategy that looks to drive penetration. We will continue to invest into this strategy to drive our brand heat further. Now, good marketing only works when the product itself is resonating with the consumer. That leads me nicely on to the next slide. Our redefined core covers all of charms and carriers. This is our Moments platform and PandoraMe. It's imperative that we continue to develop the designs to stay relevant. I spoke earlier in the year about our new studded chain bracelet which underpins our unique captive business model in moments. This continues to do very well and we've also complemented with other variations such as a gold plated version which is also driving good incremental growth within our bracelets. Our base products in charms also performed very well. We simply have the scale and breadth that no one can match. Overall, this helped to drive 7% like-for-like growth for the Moments platform. Meanwhile, it's also great to see our continued efforts and focus on Pandora ME continue to drive strong results with a plus 12% like-for-like growth. This was helped with a good uptake of our new product offering here. Next slide, please. To fuel with more, we continue to invest in all our other platforms as we truly elevate Pandora into full jewelry brand. You can see that this year the strategy has continued to work. Timeless, which is our second biggest platform, reported a very strong quarter of plus 21% like-for-like growth. This was relatively broad-based, but also boosted by various social media trends in products, such as the Promise Ring. When you have beautiful products and relevant marketing buzz, then the impact can be very powerful, given our reach as the biggest brand in the accessible jewelry market. For diamonds, in late August, you will remember that we launched our expanded assortment. It's very early days, but we have been encouraged by the early signs we have seen since then. The growth in the quarter comes off a low base, but let's speak about that in a bit more detail on the next slide. As you heard a few weeks back, we remain very excited about the future of lab-grown diamonds for Pandora. We believe this has potential to be transformative for the group and have given a new ambition of driving more than a billion DKK of revenues by 2026. The first step in this journey was taken in Q3 where we expanded with three new collections which feature more classical designs while still carrying a Pandora twist. This was accompanied by an exciting new star-studded marketing campaign under the banner of Diamonds for All. The campaign has seen very strong results with our share of voice being particularly strong in the immediate aftermath of the campaign. In terms of our actual performance since the launch, we've seen a doubling of our absolute sellout in the US. This is a small sample size and we have plenty of work ahead, but we remain confident of the opportunity here. As the next step within this month, we'll be launching the collection across Mexico and Brazil. Next slide, please. Before I dive into the specific markets, I just also wanted to touch on the personalization growth pillar. It's clearly our job to ensure world-class in-store experience and complement our products with best-in-class services. In-store and online engraving is a great example of this and we have significantly scaled up our offering here this year with 850 stores offering the service. This is already driving good incremental growth and therefore we remain excited about our rollout plans here with a total of 1,450 Pandora stores offering these services by the end of next year. Next slide, please. Now, let's take a closer look at the specifics of the third quarter. We delivered 11% organic growth with a strong like-for-like of nine. This was a clear acceleration from the trends we saw in Q2. A lot of this is down to the Phoenix initiatives coming together across brand, product, and in-store. Now diving deeper into the performance, we believe we did see some benefit from higher than expected tourist demand over the initial summer period. We clearly don't know if these holiday patterns remain next year. But overall, we are clearly very happy with the progression of our business. It's clear that the brand heat is consistently moving in the right direction and we're executing well. This can also be seen from the continued outperformance of our own and operated stores, which delivered a very strong plus 12% like-for-like growth. As I said last time, we continue to work closely with our partners to help them narrow their performance gap. Now, let's move on to the next slide to take a look at the growth in our key markets. Let's start with our biggest market, the U.S., which delivered a 5% like-for-like growth, a strong sequential improvement compared to Q2, where it was minus 5. It's great to have a positive growth back in our largest market after last year, where we lapsed the comparatives from the stimulus checks. Like with many markets, the U.S. benefited from our brand initiatives driving increased traffic, whilst performance was also helped by stronger execution with better conversion rates on higher traffic. Performance of the partners improved to be slightly positive in the quarter. However, as I mentioned, there's still a big gap versus our own operated performance. So we keep working on that. As ever, we've got a strong commercial pipeline for the holiday season that's coming up. Next slide. The performance in our key European markets also improved to plus four like for like versus the flat in the prior quarter. The UK continued to remain resilient despite the weak consumer backdrop. Germany continued to build on its already strong momentum to now deliver a whopping 31% like-for-like growth with strong growth across all platforms. Again, numbers like these are not repeatable every quarter, but we believe the brand still has a long way to go in Germany. In Italy, despite the still weak macro, we saw sequential improvement to be broadly flat in like-for-like terms with better brand momentum. And I want to spend an extra second on France, which we saw notable pickup to plus 5% like-for-like. Whilst there was an element of extra tourist traffic here, we have, as you know, been investing for some time here to elevate the brand desirability. This has included new ambassadors and driving stronger media campaigns, and we are clearly starting to see some of those positive elements play out through a higher brand equity. Next slide, please. In China, our performance was a flat like for like. We relaunched the brand earlier in the quarter in the city of Shanghai and have started to see some encouraging signs. You'll remember that Massimo shared some of these with you at the CMD, but just to highlight some data points again. Since the brand relaunch in Shanghai, we've noted a 37% increase in store traffic versus the rest of the country. There's also been positive trends on social media. However, this was offset by weaker traffic elsewhere. As we've said, this will be a journey ahead and we will continue to monitor our performance going forward. In Australia, our performance was somewhat weak at minus eight, which reflects the still weak consumer sentiment and weakness, in particular in the wholesale channel. Finally, in the rest of Pandora, we continued to see strong growth. There was a strong double-digit contribution from many markets where we continued to build out our presence. Growth in Mexico and Spain also continued to remain solid whilst we saw strong double-digit growth across other countries like Turkey, Portugal and Poland, to mention a few. Next slide, please. You heard me earlier explain how network expansion ties into our new financial targets with a targeted contribution of 3% KGR over the next three years. This is low risk and highly predictable revenue stream. In this quarter, the contribution was already four points, reflecting how quickly we see good revenue growth from new stores. We are well on track for our targeted openings this year. You will also see on the slide a reminder of our vision ahead for network growth. There's so much white space opportunity ahead for us. And over the next three years, we'll be opening around 450 stores. This is through a combination of concept stores and shopping shops. Next slide, please. Finally, I know some of you had the chance to see our new Evoke 2.0 store concept in London last month. For those of you that didn't, I just wanted to emphasize that this new store concept is a step change in how consumers will view the Pandora brand and how we execute. It serves two core purposes. The first one being to elevate the brand and secondly to position Pandora as a full jewelry brand. We have ambitious plans to accelerate our rollout here, which you can see on this slide. For this year, we're on track to have our 40 new Evoque stores, so I'm sure you'll keep seeing them pop up near you. So do have a visit for yourself to experience the change. And on that note, I hand it to Anders for a closer look at the numbers.

Thank you, Alexander, and good morning or good afternoon, everyone. And please turn to slide 22. The key message for the quarter clearly was that we delivered a very strong top line. But on top of that, our profitability metrics also remain strong. As usual on this slide, I'll just dig into some of the other KPIs and then get to the revenue and EBIT on the following slides. You already heard Alexander talk about the gross margin, but it's worth for me mentioning it once again, because our gross margin did reach a new record high at 79% in the quarter. And this is a continuation of the journey that we've been on for some years, with a gradual increase in the gross margin. It's driven by strong underlying foundations, and that's why we emphasize at the CMD that the gross margin will remain high going into the future also. You can see in the table that our working capital was broadly flat in the quarter at around 9% of revenue. And within working capital, you will note that inventories were down versus last year, around 300 million kroner in absolute terms, and from around 20% to 18% measured as a percent of revenue. For the full year of 2023, we are well on track to end the year with inventories broadly flat versus last year, and thereby down as a percent of revenue given that Pandora is growing the top line. And this is all in line with what we've said previously. Worth noting is also the improvement in the cash conversion in the quarter to 65% compared to 0% last year. And this difference is mainly reflecting that last year we deliberately built up inventories. And finally, just as a reminder, the increase in leverage to 1.5 turns reflects the higher shareholder distributions, which we decided to pay out in order to move up from the low end of the capital structure policy last year to around the midpoint by the end of this year. And aligned with normal seasonality, our leverage peaks here in the third quarter before falling back in Q4, where we expect to end this year around 1.2 turns. And then please move to the next slide. And here we'll take a closer look at the revenue performance in the quarter. Most of the building blocks in the bridge are probably self-explanatory, so there's just two of them that I want to comment on. First of all, we saw another quarter with solid contribution of four points from network expansion, and this is in line with the guidance for the full year as well. The EBIT margin on this incremental growth in Q3 was north of 30%, and with margins on this network expansion going even further up when we get to the peak here in Q4. Secondly, I wanted to comment on the building block that we call sell out and the minus 2%. And as you probably know that this is an impact we had expected and it already sits in the old guidance. And there's three sources to this headwind. First of all, lower like-for-like performance among our partners leads them to operate with lower inventories. and in some cases probably too low inventories, and this reduces our sell-in. Secondly, we see quite low performance among partners, other points of sale, for example, multi-brand stores. And these types of stores are not included in the like-for-like KPI, and therefore it drags down organic growth only. And finally, there's a number of other smaller factors such as provisions for the loyalty program that we are launching in a number of countries. The comparator from the diamond launched last year in 2022 and reducing business with a partner in Germany. And then please go to the next slide. You may have noticed that we have redesigned this EBIT margin bridge slightly this quarter. This is all in line with what we spoke about at the Capital Market Day and reflects how we think about operating leverage and our investments into growth. On the EBIT margin, our key message is consistent with what we have said all year. profitability remains solid, all our underlying drivers are progressing as planned, and we are on track to deliver around 25% margin for the full year. And as we've said since the start of the year, the EBIT margin in the first three quarters will be below 2022, and then Q4 will be above. And I'll explain the drivers of the Q4 margin uplift shortly when we get to the guidance section. But to put it in a simple way and just to repeat what we said last quarter, then as long as revenue comes in within the guidance, we will deliver on the full year EBIT margin. And with that, then let's move into the guidance update on slide 26. As Alexander already mentioned, we have upgraded our revenue guidance, and here's how we think about it. First of all, we've started the year better than expected. Organic growth year-to-date in 2023 sits at 5%, and thereby at the high end of the old full-year guidance. Secondly, we have seen a clear acceleration in growth in the third quarter, with organic growth landing at 11%. And on top hereof, current trading in Q4 has also started well with underlying like-for-like at high single-digit levels and thereby also clearly above the old guidance. And based on those factors, we have updated the guidance for organic growth to between plus 5 and plus 6 percent versus previously plus 2 to plus 5. And we know from the questions and comments that we have received from you this morning that many of you have already done the math to see that the new guidance implies a like for likes specifically in Q4 of between 2% and 5%. And you may ask why we are guiding with 2% to 5% like for like in Q4 when the third quarter sits at plus 9% and current trading at a high single-digit level. And there's four things here that we want to point out. First of all, as you know, the holiday season is typically more competitive across the board. Secondly, our social media activations were particularly strong over Q3, and this is not a linear progression. Some quarters we will create more buzz than others. It's clearly our strategy to continue to drive this, but you should not think of this as a repeatable aspect every single quarter. And thirdly, I also want to add that the rest of Pandora saw very strong flight growth at 22% in the third quarter, and comparatives there do get tougher as we move forward. And lastly, we remain conscious of the macroeconomic situation, and the macroeconomic backdrop do remain uncertain, and at the low end of the guidance, we assume macro to weaken. And then go to the next slide, please, slide 27. Our EBIT margin guidance remains unchanged at around 25%. The EBIT margin so far this year is in line with our expectation, and we are on track to deliver the 25% margin for the full year. Now, based on the year-to-date performance, you will be able to calculate that the guidance implies that the Q4 margin is up year over year. And in this connection, I just want to highlight a couple of pointers which may help you thinking around that uplift. First of all, we had a 100 basis point drag from the pure facing of costs during the first three quarters of the year. And as you know, this is as expected and it will swing around in Q4 and become a tailwind. Secondly, commodities and foreign exchange will be a 60 basis point tailwind in Q4 compared to last year. And that comes after having been a drag of 70 basis points during the first three quarters of the year. So it's also a quite big sequential shift as well. All of this means that we have good visibility on the drivers to deliver the year-over-year increase in the Q4 margin. Finally, as a reminder of what we said at the Capital Market Day, we will accelerate our investment in order to fuel current and future growth. And you can see that already in play here in 2023. where we have been increasing our Phoenix investments during the year as revenue growth kept going up and operating leverage allowed us to increase investments. Because we want to build on the momentum that we have and invest for the future while still delivering on our EBIT margin commitment, of course. And with that, I'll now hand it back to Alexander and please go to slide 28.

So to conclude, we are pleased with delivering yet another strong quarter. And I think it's clear beyond any doubt that the Phoenix strategy is driving this growth. We are now ready to take it to the next level and accelerate our growth as we discussed at the CMD just recently. Well, you've seen already some of the initiatives playing out as the brand hit is driving great momentum across the board. And due to this, as Anders just pointed out, we have raised the fiscal year revenue guidance and remain firmly on track to deliver our EBIT margin guidance. Just before we open the Q&A on this chart that you see, you will notice that this is our new upgraded equity story. And it very much encapsulates the point I mentioned earlier and the vision for the group that we laid out at the Capital Markets Day. And with those words, I think we're ready for the Q&A.

We will now start the question and answer session. If you do wish to ask a question, please press five star on your telephone keypad. If you wish to withdraw it, you may do so by pressing five star again.

There'll be a brief pause while questions are being registered.

The first question will be from the line of Thomas Chaubert from Citi. Please go ahead. Your line now will be unmuted.

Good morning, everyone. I have two questions, please. The first one, if we go back to the sequence of improvements throughout the year, your revenue guidance at the beginning of the year at the top end was plus 3% organic, flat, like-for-like. Well done. Nine months later, you're at plus 6% organic at the top end and plus 4% like-for-like, so with a sequential improvement. Can you explain why your EBIT margin guidance hasn't been upgraded in parallel to that kind of sequential improvement, particularly in the fourth quarter where you've got high single-digit like-for-like so far. It's early days, but record course margin and more favorable OPEX phasing. And my second question on Timeless, it's now become, I think this year, 15% of Pandora sales. I think it contributed about 3%. to group LSL in the quarter. It's a great sign of confidence in your ability to become a full jewelry brand as you detailed at your recent invest today. Could you comment on the categories driving that 20% LSL in Timeless this quarter? And are you able to allocate more space to this new evil concept to perhaps speed up the rollout of Tendora Essence? And how do you think more broadly about risks of cannibalization of sales with moments but also cross-selling opportunities. Thank you.

Hi, Thomas. It's Anas here. I'll try to answer the first question. The short answer is that we have been accelerating, as the year has been going by, we have been accelerating investments into current and future growth. and have been doing that quite deliberately. We spoke a bit about that at the Capital Market Day as well, saying that we want to make sure that we grab all of the opportunities that we have in front of us and fuel the momentum that we feel that we have. Of course, you can also do the math and see that the incremental growth that we are driving this year still comes with 25% EBIT margin, but we have been bringing forward some of the investments as the year has been going by. We think that that's the right the right trade-off to go for in 2023 and actually also going into 2024, as we spoke about at the capital market day, really making sure that we have put proper power behind the growth opportunities that we have. And as you can see on the top line, something seems to work with the money that we're putting to work across the business. So, yeah, I think I'll stop there.

Okay. On Timeless. So I'll just take them a little bit one by one. So in terms of Entry point to the brand we can see that a lot of our rings on timeless Act as entry points in particular for slightly the younger audiences so a lot of people can start into the brand and then eventually we can swap them over to the moment platform Speeding up Essence. I mean, we have a timeline for Essence. It's also a production matter, especially when you're into pearls. It's not as straightforward as it is to cast silver. So there is a timeline for Essence, but it's coming next year, so that's all fine. Then the particular detail on timeless rings are driving very strong growth. I think we can maybe detail out in a separate session exactly what sits there. But in general, I think this is a reflection of that people are now starting to appreciate that the brand is not only It's not only about moments, essentially. And then the other thing, what has been plaguing us in the way we categorized timeless from prior years is that we had... Let's call it capsule of what's called reflections that was actually sitting in those numbers. That business has gone from glory to nothing. And as we've been kind of sucking wind, now it's such a small part of. So within this, we've had what we call true essence. That's actually been at a very strong growth rate over the last few years. But now it's becoming more visible in the numbers as reflections becomes smaller. So there's a bit of a mix there. mix shift happening there but but rings is really what's driving a lot of the growth part of this is also some the stuff I touched on social we see on TikTok for instance that these trends just take off like crazy I think we mentioned that already in Q2 with the sun and the moon ring as an example there was another well there were a couple of more happening this quarter and some of this is is coming into the timeless timeless range essentially

Thank you.

Thank you, Thomas. The next question will be from the line of Ben Rademarten from Goldman Sachs. Please go ahead. Your line will be unmuted.

Morning, and thanks very much for the questions today. I just had two, if that's okay. The first one was just on the trading that you're seeing into October. I'm interested if you can talk about any differences across the geographies you might be seeing at the moment. And my second is just on the, I guess, split between repeat and new customers. Interested if you can also talk to the contribution that you saw within the last quarter between those two customer bases and what you, I guess, expect or what you guys are seeing drive the new customers into your stores. Is it some of the new ranges or any detail there would be super helpful? Thank you.

So on October trading, it's broad-based, so there's nothing that's kind of popping out. There's not a 1-1 to hit. It continues to be broad-based like we've seen in Q3. So I don't think there's much more to deliberate on that at this juncture, really. And let's remind ourselves that the October month, which we're talking about, is 20% of the revenue base for Q4. So just to have that back of your head. On new versus returning customers, I actually have to go into the data. It typically splits. Sorry, we get it in three buckets, the way we classify the data. So we have new, we have returning, and then we have something that's unclassified. It roughly in the data is a third, is a third, is a third. and that typically is is the similar trend so it's so it's actually what you see is that the the absolute volume of all three is what's gone up in the quarter so it's not one over drying versus the other and as you could expect since 60 to 70 percent of our business still is um in the core that's also in absolutes what's driving most people through the door so so it's not like just because we advertise let's say pandora me or timeless that you'll get a disproportionate amount. So they kind of move together in a way. And you saw the like for like in the quarter on moments was plus seven. So in absolute terms, this is where the bulk of the customers, numerically speaking, are coming through the door.

So I hope that's somehow helpful. Great. Thanks very much.

Thank you, Ben. The next question will be from the line of Michael Rasmussen from Danske Bank. Please go ahead. Your line will be unmuted.

Thank you so much and well done guys on another strong quarter. Two questions from my side. First of all, did you divest a number of O&O concept stores in countries like Netherlands, Belgium, Ireland, Singapore and Romania? It seems like Around 70 stores is missing from the O&O concept line, but they're still there on the total number. So did you divest these to 20 franchisees? And why did you do so, if that's correct? And secondly, just a few commentary on the momentum in the business also going a little bit further ahead than just the holiday season here. So you guys point to obviously comps are getting more challenging and macro uncertainty maybe also is growing a little bit. So just looking into 2024, would it be right to assume that you might grow below the 7% to 9% guidance range and then you will see a pickup in 2025? Or how should we think on that? Thank you.

On the first one, I mean, we have not divested anything, to my knowledge, unless something's happened under my radar. Typically it doesn't in this business. And we're certainly not granting new franchise contracts. If anything, it goes the other way when these contracts are up for renewal. So maybe we just need to have a double check on that number. But we haven't done anything to that nature. That's not part of our strategy at all.

no and but let's just revert to you michael it's honest here on on specifically on that question just to compare compare notes but the answer is as alexander said uh and then on the on the second question uh yeah i think i'll just go back to what we talked about at the at the capital market day uh um and um i i you shouldn't think about the the seven to nine percent organic growth as necessarily being back-end loaded. We have talked about that the EBIT margin progression towards the 26% to 27% target will be phased towards the later part of the three-year target period, but it doesn't necessarily translate into on the top line. If macro became really bad, could we then have a year where we would start below that range and then pick up as macro and normalizes, yeah, who knows, that of course could have some kind of impact, even though we can see this year that we can deliver nice growth in a weak macro environment. I think that's important to know. But long story short, we're not guiding for 2024 yet, but we're not categorically saying that 2024 will be below that CAGR that we've set for the next three years. That's not the case.

Great.

Thank you very much, guys. That adds a bit of comfort. Thank you.

Thank you, Michael. The next question will be from the line of Gordon Besh from BNP. Please go ahead.

You'll now be unmuted. Yeah. Hello. Hi.

It's Antoine Besh at BNP. I've got two questions. First of all, the U.S. market came back to growth. I think everyone had been wondering how long the digestion of the combs would last. Is it possible to have a bit of color maybe on the part of the U.S. which are doing better and also in terms of region and states and and also the type of product that has been received well and to what extent you're confident that it will continue from that quarter. And then my second question is about 2024. So I think you already answered in a way about 2024 not necessarily below the long-term guidance. So in terms of the other thing that we I wouldn't say know already about 2024, but first of all, I would like to understand if it would be, you know, this year also a phasing of margin like we had last year, or you consider that now you've been rebased and there shouldn't be any, you know, major difference in terms of, you know, margin evolution throughout the year. And also in terms of the, based on current, you know, spot choice. So what is the, impacts from raw material on the one hand and effects on the other hand on gross margin or EBIT. Thank you.

I can take the first question on the US. So first I'll give you a generic answer and then maybe a somewhat more specific one. In general, when it comes to our business in a given country, there is hardly any variation to discuss when it comes to which type of products sell. The one difference which we have seen and we've spoken about at length is the performance of our franchise partners versus O&O, which is driven as we've many times said that they don't have enough inventory in places and they don't put don't have the same, let's say, aggressive scheduling of labor hours that we do in our O&O. Those are typically the only material differences that we see. Now, in the U.S., this is also true, what I just said. What we have seen which speaks to my latter point, is where we have taken over franchise partners, we have seen, of course, a pickup in the performance when we run them, i.e. when we put the right inventory in place, when we put the right people in place, and when we put the right staffing hours in place. Then we can see... a movement on the like-for-like performance. So, of course, what we have in our baseline is on the west coast of the U.S. and some of the southern states where we have taken over during the prior year those franchise partners. And that's probably the only thing which right now would be a delta versus the national performance in the U.S. in terms of performance but this you know once we get into next year this will cycle out of this so there's not nothing structural there other than that from an operational standpoint we're just doing a better job than than the prior uh partner there and then maybe i'll turn it to you to once again not speak about the 24 guidance i don't know why you're asking because we guide in february so

Thanks, Antoine. Maybe starting with the last part of your question on FX and commodities impact. Next year, net-net with the current spot rates is almost flat. A small positive on FX. Next, this is for 24. A small positive on FX and a small negative on silver. And coincidentally, actually getting to zero. So building on what Alexander just said here on the budget for 2024, we're still in the planning phase. So it's too early to talk about the margin in general, but also the quarterly phasing. But if there's something that will be sticking out on a quarterly phasing, we'll say it upfront, like when we guide for 2024, like we did early this year, but as you said, we have been doing some rebasing in 2023, so at 23 is a better starting point for 24 than 22 from a phasing perspective. That's the way to think about it.

Thank you very much.

Thank you, Gordon. The next question will be from the line-up Geraldo Dania from

RBC, please go ahead. You'll now be unmuted. Okay, thank you.

Morning, everybody. So if I could maybe just start with your view. Firstly, well done on a good quarter. But the first question is just on the 2026 target and how you see the gross margin evolving in the context of the EBIT margin guidance. I know you haven't specifically guided to that at the CMD, but we look at that strong gross margin probably ends the year around 78%. I'm just wondering where that could potentially get to, whether you see upside in that over the next two years. And I guess that's in the context of Thomas's question earlier, just around the fact that You keep raising the revenue guidance in 2023, but there's no leverage coming through. So just wanted to really understand if you do the like-for-like that you say to the 2026, how much confidence do you have that the EBIT margin can expand on the operating leverage or is it going to come from other sources perhaps? And then secondly, just a point of clarification, the wholesale DSO days went up to 40 from 34 last year. However, there was a drag from a selling perspective on revenue growth And then also at the EBIT margin level, those are quite contradictory. So we're just trying to understand how that works, because surely if you're selling in less to wholesale, then your DSO days should go down. Perhaps you could just help us understand that. And then thirdly, just on the like for like that you've done in the third quarter, 9%, if we exclude hyperinflationary markets and the price increases you're putting through in those markets, What would be the pro forma retail like for like for your core business, excluding any hyperinflationary market? Thank you.

All right. Hi, Perales. I'm here. I actually think I counted three questions, if I'm not mistaken, but we'll go through them anyways. On the gross margin, I think when we had the capital market day, we said that a couple of points. The gross margins are going to stay structurally high. There's no... one-offs in what we're seeing in the third quarter. If you look at the gross margin bridge we have in the company announcement, you could actually argue that the underlying gross margin is even higher than the 79 because we still have 90 basis points dragged from forward integration. So I think the way to think about the gross margin going forward is like what we said at the capital market day. It's going to be in the high high 70s. And that, as you can see, it's high, high 70s. It's not just high 70s. Of course, with an assumption about where silver prices being where they are right now. There's also a When we speak about leverage, there's actually also some leverage on the gross margin side. As the company becomes bigger, there's leverage on the infrastructure in Thailand and going forward in Vietnam as well. But as we said at the Capital Market Day, when you look at the bottom line, where we are right now with the amount of growth opportunities we have in front of us, we want to take the opportunities that we have to fuel further top-line growth. There's still very nice incremental absolute EBIT and EBIT margin on the growth that we are driving, but we are deliberately investing in current and future growth. And again, as I said with one of the questions before, I actually think when you look at the third quarter numbers, we can argue that it plays out quite nicely. And then at a point in time when we get further down the road and where we have invested the amount of money we want against the growth drivers, then as we said at the capital market day, there could be up to 100 basis points of EBIT or 1 to 200 basis points of EBIT margin expansion coming your way, so to speak. Then on the DSOs, the DSO calculation takes into consideration how much revenue that you have. So you can easily have revenue, wholesale revenue going down and then the DSOs goes up all the other way because it's factored into how much revenue that we actually have. And we calculate it specifically on the wholesale revenue. It's not on the total. Pandora revenue. If you did that, calculated the DSOs on the total Pandora revenue, you'll get to, I think it's 15 days in Q3. But that's a little bit of an odd number. So the number we disclosed, we calculated specifically based on the revenue that we've seen in July, August, and September. So it is correct that the DSO is up year over year. And we put in a bit of commentary on it in the company announcement on one of the pages. And there's a couple of things, and you might have read that already. But one is that there's quite a big difference on the DSOs across countries. It's very low in the U.S., less than 15 days because our partners pay by credit card and and quite a lot higher in most other parts of the world and that's quite some country makes shift in there in the in the quarter given that the wholesale revenue specifically in the u.s is down what was it 40 in in uh in in in q um in q3 um so that that uh explains the majority of it and then as we also wrote in the comment then as a way to try to kick start this too big like for light gap that we have between our performance in our own operator stores and the partner stores we've in a very few selected markets or partners we've given a payment term incentive temporarily just as a one-off exception to try to say well try to get a decent level of inventories in your store. We are convinced that you will see like for like pick up and that being a very good investment for you. And so that we've also done specifically in the third quarter, but that should be phased out when we get into already this quarter Q4. And then on on hyperinflation. That's a Turkey thing only. We have a little bit of business in Argentina as well, but on a group level, that's very, very small. But we have a very, very good business in Turkey, I should say. And revenue in Turkey is and it's just around 2% of group revenue in the third quarter. And Turkey is accretive to group growth, and we have a three-digit growth level in Turkey, but that's also three-digit unit growth, so it's real money. the growth that we've seen in Turkey, but there is some impact from the macro and FX impacts and development in Turkey, and it's just below one point of growth specifically in Q3. But we expect this to moderate already going into the fourth quarter here, but specifically in Q3, it has a certain impact on a group level.

Okay, that's very clear. Thank you.

Thank you, Geraldo. The next question will be from the line of Christian Godiksen from ACV. Please go ahead. Your line will be unmuted.

Thank you. I'll start with the two questions. So as you mentioned yourself, the implicit guidance on like-for-like seems conservative of these 2% to 5% compared to the 9% in Q3 and obviously the high single-digit in October you mentioned. You mentioned the competitors being stronger in November and December. I guess that was also the case last year. I was wondering a bit about what you'll get the full effect now from lab-grown diamonds, where you only had one month in Q3, and you've also started to sell in essence, I can see, in Q3. I guess you could also have some effect from the essence. First question would be wondering, what are your assumptions for both lab-grown diamonds and decims? Then on the second question, that would be also on the lab-grown diamonds. We've seen prices plunge for lab-grown diamonds. I was wondering if you could comment a bit on on both on your assumptions in this one billion target and and also on the uh like light target of the four to six percent going forward and and um yeah commentary around how you locked in volume and prices uh in in in the future those are the two questions for now thanks

so on the on the first question i mean all of your questions sit in the guidance you know we are not going to detail out every single product line and what revenue assumptions we are making this the answer is in the guidance essence is a non-item because it's traded in 20 stores in holland so this is is not a number to to really discuss Diamonds, the only color I can put on that is since launch, it's doubled the run rate of the business size in the US, which is quite positive. And if we look at what happened last year, we saw that it followed the trading peak, let's say, as we got into the last two months of the year. So it followed the general trend of not just Pandora, but the category. You should expect that that's going to be the case. Then on the diamonds pricing, this is a hairy question because I don't know what you're referencing when you say that the pricing has plunged. Where and what? And what quality of stones are we discussing? Because I can drop the pricing if I sell different quality of the stones. Just like you do on the mined diamonds, by the way. So I don't know that this is an easy answer to give. Sorry?

Sorry, Alexander. Just to be more precise. It was more on the sourcing we've seen. uh that you know production being scaled up from lab grown diamonds in general i think across the obviously the uh yeah both in sizes and quality i think the prices for that one diamond has come down so just wondering yeah on the strategy in that regard crisis going forward and also yeah implemented in the four to six percent uh What are your pricing strategies if prices are to come down?

So there's a couple of things. Silver is a pure commodity, if you may. Diamonds, whether they're mined or lab-credited, a commodity to that degree. I can go and I can buy stuff that's not fulfilling, for instance, our sustainability criteria. Then I probably could buy something that has a different price to it. I could buy a different quality of stone. I think that the big price drop on lab credits, as far as we can see, has kind of happened over the last few years. Now, if we look at the technologies and the type of yields that these producers are getting, this is the biggest difference between pricing. So as they improve their yields, they can pass some of that improvement in cost of goods on to be more competitive in the marketplace. We have very competitive rates. And of course, the way my contracts are structured is in case there's a new technology breakthrough and the pricing changes, then we can follow that. But we don't expect massive differences, to be honest. So I think... We are not seeing necessarily what the things that you're mentioning, not in the short term necessarily. And the thing is, when you buy three stones is one thing. When you're buying big volumes like we are, there's also something about having agreements, service agreements, volume agreements. So it's a more complex topic than just talking about a pure commodity like silver. That's a very different type of trade. So it's not a black and white question or answer.

Okay, thank you. So just to be sure, so if prices were to come down, then the contract stipulates that you would be able to, let's say, renegotiate, but prices would follow if some kind of technological breakthrough were to happen.

Yeah, it's not going to have a negative impact on my gross margin. But that, of course, assumes all else equal. So, yeah, I think it's a more fluid situation.

Okay. Thank you. Thank you, Christian.

The next question will be from the line of Lars Toppen from Carnegie. Please go ahead. Your line will now be unmuted.

Thank you. Congrats with a very strong quarter. I had first a question on the Momentum through the quarter because I remember at Q2 you indicated your like-for-like growth had been mid-single digits the first six weeks of Q3 and then you end with nine. So I of course wonder what the momentum has been in the last seven weeks. And also if you say nine is sort of the run rate for Q4, does that mean you saw sort of an acceleration in the second half of Q3 and now you're losing that momentum again? And in that context also, lat grown was roughly 5% of sales in the US for the quarter. I wonder what that percentage is since the relaunch, i.e. for the past five weeks of that quarter. And then a very tiny second question. And as you mentioned that the holiday season is more competitive, that's why you factor in slower growth in your guidance. Wasn't it also more competitive last year? Or is this a specific 2023 phenomenon that has incremental impact on you guys? Thanks.

So let me start with the first one. So your math is correct. Is the momentum different? Yeah, it's higher. Otherwise you can't get to the nine. So it's different in the back half of the quarter than the others. Otherwise, arithmetically, it doesn't hang together. On the lab credit diamonds, I have to come back to you on the detail for those last five weeks. I think the number two that kind of sticks in my head is that the run rate has doubled versus the pre-launch. And that, I think, is the more important number because it just suggests that we are attracting more people to the franchise. And on the holiday season, no, I don't think there's anything different going into the holiday season other than that the full year of this year, the jewelry market has been in a negative space, which means that people have more and more pressure probably on their P&L. And what we already saw last year, some desperate moves when it came to promotional pricing. They started earlier, they went deeper. And this was not just for our category. So as we've been sitting here thinking about what could happen, well, certainly it's not going to get easier in this season. So, you know, it's an assumption that we're making that it's probably going to get a little bit sharper on the price competitiveness just because people probably have been sucking wind. You know, there's some people that are growing in this category, being us, and there's some that are not. And of course, as you get to the back end of the year, You have some numbers to catch. So, you know, we expect that there might be a little bit more aggression in the market. You know, we shall see in January if that played out or not.

Yeah, I think that's fair. Just to understand the first part, absolutely correct. So implicitly, what you're saying is in the second half of Q3, you had double-digit sell-out growth. And is it that one rate, give and take, continuing into Q4? Or is it the slightly weaker full quarterly run rate.

It's higher. But remember also that part of that growth was this kind of domestic tourism. And of course, we don't expect that to be the kind of, let's say, anniversary into the next quarter necessarily. So you need to make some judgments on where all of this traffic growth came from. Is it going to continue? And of course, that part we think then maybe is going to soften a little bit as we get into Q4. So it's a bit of a guesswork, to be perfectly honest.

I understand, but didn't people mainly travel in the beginning of the quarter? That was summer. I mean, I assume they travel more in July than in September.

But if you go to Southern Europe, then you get that travel in August, right? So in the northern countries we have to take summer when the sun is out and further down they have a slightly... So actually you see it over both July, August and a little bit into September. That's probably what we've seen. But remember, this is not a perfect observation. That's the only hypothesis that we have been able somehow to validate. Because what we have, of course, we have stores which are in... let's say tourist areas and there we can see what happens but where we saw the difference was in the stores that are not in the tourist area where we typically don't get tourists because we can see it on the credit cards whether they're from you know local or not local and that's where we saw this unusual trend and therefore we had this idea of it's probably the local customer that simply is spending more money in a period where they normally for the previous years didn't so it spread across more than just July

Perfect.

Thank you very much, and congrats again. Thank you, Lars.

The next question will be a line from Ben Aftenhaag from Society General. Please go ahead. You'll now be unmuted.

Hi.

On the inventory, how should we think about the inventory for the full year 2023? And second question is on the other, like I think this question has been asked, but like on the other geographies, how are you trending in the quarter to date, like basically in October? Thank you.

On the inventories, we expect the inventory in absolute terms to be roughly flat year over year when we get to the end of 2023. And then given that the business is growing, then that translates into a lower percent of revenue, but broadly flat measured in Danish kroner by the end.

And on the second question, I mean, we... We don't comment on individual countries when we're just giving a trading insight, let's say. So, you know, you'll have to do with that the total business is doing this high single digit into the first six weeks.

Okay, got it.

Thank you.

Thank you, Benaf. The next question will be a follow-up from the line of Christian from ACB. Your line will now be unmuted.

Thank you. I had to limit to two to start with. First of all, I was just wondering, you've mentioned now in a couple of quarters the difference in performance between your stores and franchise stores and specifically here in the US. I was just wondering what are the pipeline of potentially doing acquisitions? I guess it depends on timing of when the agreements run out. And on their inventories, do they need to buy into the full Labgrum Diamonds collections? Or is that a worry? And how to think about the upgrade of Evoke? Is that something that the franchisees are doing? So that would be the first question. And then secondly, on the margin, Just wondering how to think about the impact from the margin, from the lower sell-in to wholesale. How much of that is temporarily? And I guess that should replenish when they need to replenish inventory.

Thank you. Maybe I can start on the sell-in, sell-out and forward integration. If I go back to the capital market day question, then we said there would be around one point of growth per year on revenue from forward integration in 2024, 2025, 2026. It's also one point this year. And if you do a bit of math, you'll probably get to that 50-ish stores per year on average. And that's how to think about it. So obviously, we've known had this situation for a while where we are doing like-for-like in our own stores is quite a lot better than in partner stores and that of course can make it an even more attractive business case for us to run the stores ourselves. But it doesn't change the pace that we're looking at here with around 1% per year of incremental growth.

On the diamonds, I mean, as you know, we have initially in the U.S., we went with a selective distribution. So we had select partners that jumped on it. Now we've broadened that out. So, you know, they own their inventories. You can't shove things down anybody's throat. But we're trying to have a sensible commercial conversation and there's strong support in Australia and the U.S. So that's no concern of ours. And when it comes to Evoke, it really depends a little bit on what sits in the franchise contract. Because in some instances, we have very old contracts, which actually don't stipulate that they have to reinvest in the business. For instance, in Canada, we have a lot of franchisees that are still with the very first iteration of Evoke. of a store concept called Big White and it's difficult for us to move them because purely legally they don't have to. Then it becomes more of a conversation between two business partners somehow. On the other hand we do have people where they have it in the contract so then there's a frequency in the contract. So where that is, they're going to come along. So part of the evoke rollout of the next three years does include franchise partners upgrading their store. The business case is good. So that's normally not a big topic, actually. And then maybe you can comment on this on the selling impact on the EBIT.

Yeah, the last question on the selling impact on the margin. That's not a precise answer to that, but I think what I would say is that it's less than half of the impact that we're seeing this year is temporary. Depends a bit also on the multi-brand side where we kind of feel that the sell-in of Pandora products has been dragged down by low performance by other brands. And of course, a multi-brand partner look at the business in a little bit different way than a concept store, where there can be a negative spillover impact on Pandora from other brands. And how that plays out next year, I don't honestly really have a super good guess on that. So I would be cautious and say maximum half and probably somewhat less than half of the sale impact this year is temporary.

Okay, perfect. So maybe just a final question from my side. So I think there's been a couple of questions obviously on the upgrade of like-to-like throughout the year, and you've just had your margin guidance unchanged. Is that solely due to reinvestment into future growth, or has there been anything that has been a disappointment throughout the year?

Okay. We had a little bit more. If you look at that bucket on the guidance that we call, it's a very long one, cost reductions, price increases and inflation. We've taken that down 20 basis points. I know we're in the decimals here, but 20 basis points since last quarter. where we've seen a little bit more inflation headwind on some of the cost categories that we are buying. We have not been able to offset that fully with our negotiations, and we've had one cost reduction project that won't have the impact this year than we thought. But that's probably the only one, 2020 basis points.

Okay, perfect. Very clear. Thanks a lot.

Thank you, Christian. The next question will be a follow-up from the line of Thomas from Citi. Your line will now be unmuted.

Thank you. Just a quick follow-up on Europe. If we look at the LFL in your top four European markets this year, there's much greater divergence between countries than in prior years. So would you blame it mainly on the macro and perhaps how the macro has impacted jewelry consumption in each market? Or have you identified perhaps now that we're close to the end of the year, that some of your own product or marketing initiative may not have resonated as well, for instance, in the UK or Italy than, say, Germany, which is booming. Thank you.

No, I mean, as I said before, we don't see those type of differences, really. I think you have to always look at the backdrop market and the brand momentum. So UK is very much plagued by a very soft backdrop. And there we know we're kind of flat-ish in terms of our revenue performance. But we believe that that is actually suggesting that we're driving market share. Italy has been much stronger negative in the first half. I think we're cruising at minus five-ish. Now that moved somewhat more towards flat-ish in the queue. Here we also know that the market has been very, very soft and we're building market share. Germany, as we spoke about, negative market, but with an enormous momentum on the brand. And France has come from behind a little bit. We've spoken about this now for many quarters. And finally, it's starting to yield some performance, still in a rather soft backdrop in France. So it kind of... seems more like where the brand is a little bit, let's say, weaker, then it becomes a momentum question on our side, where we sit like with a big market share like in the UK and Italy. It seems to be partly a factor also of the share, what happens in the macro. So it's a bit of a mixed bag. And that's kind of how I view it. We put the same, let's say, initiative program in the markets. We're leaning in when it comes to marketing investment in all the aforementioned markets. So that is not the decisive factor here. I hope that that somehow helps.

Thank you, Alexander.

Thank you.

Thank you, Thomas. As there are no more questions, I'll hand it back to the speakers for any closing remarks.

Well, I mean, thank you for the attention as always. I got one interesting question from a journalist this morning. It's like, Alexander, can you walk on water? My answer was, no, I can't, but I sleep really well at night. I hope you do as well and see you soon. Thank you very much.