Pandora A/S Ord

Good morning, everyone, and welcome to the conference call for Pandora's first quarter results for 2025. I'm Bilal Aziz from the Investor Relations team, and I'm joined here by our CEO, Alexander Lasik, CFO Anders Boyer, and the rest of the IR team. As some of you may understand, we have a bit more to cover than usual today, but there will be a Q&A at the end. If you could kindly limit yourself to two questions at a time, that would be wonderful. Please pay notice to the disclaimer on slide two and turn to slide three. I will now hand over to Alexander.

Thank you, Bilal, and welcome everyone. It's actually not been that long since we spoke to you after the 24 results, but I'm sure for some it's felt like a long time given the ever-changing world we live in. For Pandora, you'll be pleased to know it's been more of the same in Q1 of 25. We basically delivered another solid quarter despite the noises around us. We generally like to keep things simple in this company, and that means always coming back to what works for us, the Fenix strategy and our overall mission to build a full jewelry brand. And that's what helped drive the Q1 performance. We delivered 6% like-for-like growth, which helped drive organic of seven. Once again, you'll see within the numbers that we kept our core nice and stable, but then complemented this with strong growth in fuel with more, exactly in line with our overall mission. On profitability, I'm happy to also report that we started very strongly. Most of you will know that the cost environment we and most of the sector faces, but our Q1 performance hopefully emphasizes that this will not change the fact that Panora is and will be very profitable as a company. Our gross margins are up over 100 basis points again in the quarter, and EBIT margins also slightly up speak to that fact. Finally, our return on capital continues to remain very high, and the factors I mentioned previously helped drive nearly 20% EPS growth in the quarter. All in all, very pleased with the quarter, and in the context of the background, we probably agree that it's increasingly volatile. Now, let's look ahead and move to slide four, please. You can probably understand that given the world we live in, guiding for the future becomes increasingly tricky. Nonetheless, we've highlighted our thoughts here, so let me summarize. I know some of you will ask on the impacts we are seeing from the prevailing uncertainty related to trade tariffs. From a top-line perspective, it's too early to have an assessment. For now, we delivered a good Q1 and have not yet seen any effects on our business from more cautious consumer behavior that some are fearing. However, it's very early days, so it would be premature for us to guess how this is going to play out in the end. Therefore, right now, we simply reiterate our guidance for what we said in February. This is for organic growth guidance of 7% to 8%, with a like-for-like growth of 4% to 5%. This range does not account for material change in economic growth or consumer behavior. So we'll be staying very vigilant and update you if required. That brings me naturally onto current trading. We've traded through the month of April so far in Q2. As a reminder, between short time period, there's always phasing of promotion, changes in the trading calendar, which can impact things. But so far in Q2, our underlying trends are at the mid single digit levels for like for like growth. That's consistent with the current guidance range. We have also a 45% like-for-like growth. Our EBIT margin guidance, eventually I'll let Anders comment on that in detail, but summary, there's two headlines here. We've adjusted our target slightly to be around 24% versus around 24.5% previously. This is mainly on recent FX movements, which have been very volatile. And secondly, our underlying progress on our profitability remains exactly on plan. We're investing in our business while still delivering very high profitability. So there's no change there. Of course, the tariff-related situation has potential to impact our margins too. And I will let Anders detail out the scenarios there. But even there, we're already preparing for various outcomes and have already acted to mitigate potential headwinds that could come our way. So in short, we're controlling the factors we can do and preparing accordingly. Now let's move to slide six, please. I mentioned earlier how in times of uncertainty it becomes even more important we remain clear on what we're trying to achieve. This slide hopefully illustrates better. It's our usual phoenix wheel with our four pillars that are intertwined. Through the quarter we executed across all of these four pillars and some of those I will detail out shortly. I'm convinced that as long as we stay true to these four pillars and invest sufficiently behind them, We will continuously drive more consumers into our brand, and that's the single most important thing I care about. That brings me nicely on to the next slide. Given the external environment, I thought it could be helpful to remind everyone of some key characteristics of Pandora. Whilst the environment may be volatile, we'll continue to invest behind our brand, people, and growth. We are a global player in a fragmented market that has a true scale advantage and we will flex that if we can drive our competitive advantage further. We also have a brand that is becoming increasingly strong and has a strong gifting proposition. We believe that adds an element of resiliency to our business as consumers will always gravitate towards well-known and trusted brands, particularly in uncertain times. Finally, our starting point on gross margin is very high. As an executive management team, that gives us options that others may not have and means that even in harsh scenarios, the business will remain highly profitable and generate significant free cash flow. The data will continue to return to shareholders. So in summary, we don't control what happens around us and nor do we pretend to be able to predict the future. Instead, we choose to focus on what we have and are building on. These are very solid foundations backed by the strong strategy that I just mentioned. And in recent history, this has served us very well. Next slide, please. Let's start diving into some details of what happened behind the Phoenix strategy in the quarter. As usual, I'll start with the brand, and here we show some examples of our marketing efforts, which are consistently driving brand heat. In Q1, some of you may have noticed that we launched the next phase of our Be Love campaign. This campaign featured a new visual identity and also introduced a new cast of brand faces. This included actress Winona Ryder, and supermodel Iman to mention a few. The campaign underscores our ability to connect with our consumers through telling stories for our beautiful products. We will continue to invest behind our campaigns at full throttle going forward. As I mentioned, in times of uncertainty, the value proposition of our brand, we believe, is unmatched. Reminding consumers of this and driving brand heat through cultural relevance is going to be very important. On the slide, you can also see how we leverage extensive earned media coverage through the quarter to make sure we stay top of mind. Next slide, please. You've often heard me talk about how our brand and designs go hand in hand. Tied to that, I'm quite excited on our product pipeline this year, which is going to be focused on our core charms and carrier offering. We'll be bringing new and relevant aesthetics in our offering at the Pandora brand promise of being accessible to the many. In the second half of this year you will see launches of our new Mini Charms selection and Medallions. Both hold good potential in the jewelry market, where we know good consumer appetite is. Furthermore, in the case of medallions, we also know some of the new designs will also be compatible for necklaces, which ties nicely into our full jewelry brand promise. So overall, the past two slides should give you comfort that our plans for our brand and exciting designs are moving ahead at full speed, and we have many initiatives that we are excited about. Next slide, please. In the past quarter, I mentioned the launch of our new e-commerce platform. As a reminder, our old existing e-commerce platform has been incredibly successful. But as part of our mission to dial up brand desirability, we have been investing in a newer platform for a complete new look and revamp. This new platform brings the brand to life through a much more immersive experience. This is critically important given this is our largest brand window. We tested a new platform through Q4 last year in Italy and Canada with encouraging results and took this further in Q1. And I must say the results have been quite encouraging. We're seeing greater engagement across our brand from the new platform, which was the primal aim. Meanwhile, most of our commercial metrics are at least in line or better than the old platform. So this is going quite well for us. And by the end of the quarter, quarter two that is, we will be live across all our markets. For some of you who already will have lived on the new platform, I highly advise you to experience the new platform yourself. I'm sure you will see the tangible difference. Next slide, please. Now, let's look at our two segments, core and fuel with more. As you know, our strategic aim is to be seen as a full jewelry brand, which essentially entails driving steady growth in the core whilst adding higher growth in fuel with more. As a global brand, there will always be shifts between collections depending on consumer preferences, timing of new products and specific marketing campaigns. That means that the in-year focus between collections will naturally vary. I already mentioned earlier how this year our innovation will be more skewed to our charms and carriers. The big picture message we look at is growing a strong core and fueling this with more. The specific collection that drive that growth in a given year is more of a function of that. You can see from the slide that our strategy is working. Within our core, we've seen a very steady 2% like-for-like in the quarter, which was supported by good performance in our collaborations. Next slide, please. Our fuel with more segment continues to grow quicker, having achieved double-digit like-for-like growth over the past many quarters. This continued into Q1 with a like-for-like growth of 12%. It's great to see that we're indeed continuing to drive more consumers across all of our beautiful collections. In Q1 in particular, our growth here was helped by strong growth still in timeless and the essence range. Meanwhile, Pandora lab-grown diamond is performing quite well after the introduction of a new micro-fine offering. So I think the like-for-like was 140 something and in unit terms is 180 something. So very strong growth. Now let's discuss the performance within the markets. As usual, I'll start with our biggest market, the US, which delivered a very strong 11% like-for-like growth. Another great quarter and a small acceleration, actually. I know some of you would have seen last week's GDP figures from the US, so this makes the performance stand out even more. There's still no magic formula here. We believe this is driven by still strong brand momentum with our major KPIs moving in the right direction. We remain very excited about the future long-term potential of this market, but clearly watching the broader macroeconomic environment very carefully. I'm also sure most of you will also keep that in mind as you think about the near term. This quarter, our gap between our organic growth and like-for-like was not as high as it's been in the past, but that was just due to temporary phasing of selling, something we had already flagged previously. This impact will gradually ease as we move through the rest of the year. Next slide, please. In Europe, a total like-for-like growth across all markets came in at 4%, helped by strong growth in markets disclosed in the rest of Pandora, such as Spain. The performance in the key European markets did slow to minus 2 in the quarter. There are a few components to this. Our growth in Germany did moderate to 1%, but you'll remember that our comparative was particularly challenging and we're coming off many years of very strong growth. So this normalization was somewhat expected at some point. In the UK, we saw a small improvement to plus 2% like for like, helped by strong execution of a Mother's Day, which happens a little bit earlier in the UK than rest of Europe. In Italy, we continue to face some challenges and are like for like declined by nine. We have now finished our internal diagnosis of this market and a clear action plan is being developed. In France, our growth improved slightly to minus six as we realigned our media model. However, a bit like Italy, we got a specific plan for this market to ensure it drives consistent like-for-like growth. And in both markets, there's a clear need for us to dial up the local cultural relevance and investing a bit more behind our media efforts. Next slide, please. In the rest of Pandora, we delivered another strong quarter of plus 8% like-for-like growth. This performance is still of a tough comp base, so remains strong in that context. As I mentioned in the previous slide, a big chunk of our other European exposure actually sits which helps the growth here. So namely, in this quarter, Spain and Portugal continued to drive double digit like for like growth, which also then complemented by other countries such as Canada. Next slide, please. Finally, in China, we had 11% like-for-like growth and performance remains challenging overall. We are still considering the next steps in this market and making progress on our efforts to optimize the P&L and optimize the store networks with closures of at least 50 stores this year. In Australia, we saw small improvements to 2% like-for-like growth, and this was helped by some improved consumer sentiment within the region. But also I'm happy to report that Pandora's new online platform has seen good commercial metrics as well. Next slide, please. Here you can see again the immense value we create from our network expansion. There's been no change to our plans here since February, and maybe that's kind of the point. Network expansion is something we control and drive. Even in uncertain environments, we remain confident that this will remain a good driver of our growth, as there is still ample white space opportunity for us. You can see on the top of the slide how attractive the economics of a new store opening is for us. Whether it's a concept store or a shopping shop, the revenue ramp up is incredibly quick in year one and the four-wall EBIT margin is typically between 35 and 40%. So we will continue to expand on this journey ahead in 2025, where we target 75 to 100 total openings and an organic growth contribution of 3%. We've started the year well with a 4% organic growth contribution in Q1, which comes from the openings over the past 12 months. There's more to look forward to here in that regard. Next slide, please. Finally, before I hand over to Anders, I just wanted to highlight that the rollout of our new store concept is going quite well. We now have a total of 477 new concept store in our new format. And in this quarter, we opened up in some high profile locations such as Oxford Street in London. For those of you in London, please do go and visit and don't forget to buy something. The store has had a very encouraging start and is another good demonstration of what we're trying to do. Elevate the in-store brand experience for our consumers and present Pandora as a full jewelry brand without necessarily explicitly saying so. I've always said that our store concept would be one major driver of our overall mission. So far, in a new format, we're continuing to see encouraging commercial metrics. And as I mentioned in the previous quarter, it's good to see that our store staff are also starting to improve execution in the store. The new layout of the store has good productivity benefits. And over peak trading occasions such as Christmas and Valentine's Day, we're getting better and delivering better results. And on that note, I'll hand it over to Anders for a closer look at the financials.

Thank you, Alexander. And good morning, everyone. Please turn to slide 20. In many ways, the Pandora business is actually quite simple. The Phoenix strategy is all about building on the existing assets of the business, in a way just doing more of the same. And when that is converted to a P&L, it translates into a P&L that's quite easy to follow because there's no sort of big structural changes, it's just more of the same. And the first quarter of 2025 was exactly that. Nice solid top-line growth with revenue growing in the existing stores, and then we opened a few new stores on top of that. The gross margin remains at a high level, even expanding a bit, and then that feeds into a bit of EBIT margin expansion as well. and all adding up to driving nearly 20% EPS growth and a very high return on capital as we are leveraging on the existing assets of the business. Of course, it is not easy to deliver, especially in the current environment, but it is a testament to our simple business model and equity story, which we have proven now through a volatile world for the past few years. Now, so back to the gross margin. You can see here on this slide that it was up just above 100 basis points in the quarter. And in a second, you will see in the margin bridge that that increase came despite an 80 basis point drag from commodities. But this drag we have then more than offset through pricing, efficiencies and channel mix. The drag from commodities and foreign exchange will increase by a quarter as we go through the year. But the message that we passed on back at the full year announcement still stands. And that is that you should expect the gross margin to be only slightly down in 2025 despite 250 basis points of headwind from silver, gold and foreign exchange. And I'm sure you'll agree with me and the rest of the team here that any company that can maintain a gross margin of almost 80% despite 250 basis points of headwind is doing something right. So next slide, please. On this slide, we are breaking down the revenue growth in the quarter as usual, and Alexander has covered the key elements already. So I'll just highlight the light pink bar saying minus 3% tied to phasing of sell-in and other. And this effect was in line with what we set back in February at the full year announcement. And it is simply phasing of selling to the partners combined with continued quite weak performance in some of our multi-brand partner stores and some calendar effect. And for your modeling, you should expect this to gradually reverse out through the remaining three quarters of the year. Next slide, please. On the EBIT margin, the performance played out also in line with our expectations with a 30 basis points expansion versus last year. And the bridge that you can see in the slide here within the dotted box in the middle explains the underlying story quite well. Because as you can see, we had headwind from commodities and foreign exchange of around 80 basis points. But then that was more than offset through leverage from both network expansion and like-for-like growth. And that's the two of darker pink boxes in the middle. And so despite these external headwinds, our profitability remains high and in line with last year. And also just a quick comment on the OPEX. The OPEX ratio was up 80 basis points versus last year and that's mainly linked to our continued investments in the brand with marketing expenses being up 12% in the year or 60 basis points as a percent of revenue. Now let's move on to the guidance on slide 24. There's a few points about our revenue guidance that we would like to pass on. In February, when we issued our guidance, we targeted another year of solid organic growth of 7-8%, of which, like for like, is 4-5%. And as of today, as Alexander said, there's no change to that guidance. Our initial thinking behind the guidance back in February already included a continued tepid consumer backdrop, and a continued competitive trading environment. Clearly, since we issued that guidance, the macroeconomic picture is now more clouded and uncertainty has increased. But as of today, our guidance still stands. So overall, the message on the revenue guidance is that we started out well in Q1. We have left the top line guidance unchanged. But of course, the macroeconomic uncertainty has increased. Next slide, please. On the EBIT margin guidance, the big picture measures I want you to take away is that there's no change to the underlying drivers compared to the guidance that we provided back in February. All the building blocks that you see on this slide are unchanged from back in February, except foreign exchange, commodities and tariffs. And as I'm sure most of you are aware, there has been quite some significant foreign exchange volatility in the past month or so. And that has an impact on our margin, mainly coming from the depreciation of the US dollar and a few other of our main trading currencies. And then that's only partly offset by a weaker Thai baht. On top of that, we also have included a small impact from tariffs over this 90-day pause period of 30 basis points. And I'll speak about that topic later on, but in our guidance, we assume that the costs associated with tariffs remain for the 90 days, and then after that, things revert back to normal. So we've updated our EBIT margin guidance for the additional 40 basis points of FX headwind and 30 basis points from tariffs and therefore we now see a full year EBIT margin of around 24% versus 24.5% previously. And again, the big picture message that we would like you to take away is that we are facing just under 300 basis points of headwind from external factors, I guess we can call it. And that's the two large pink boxes in the bridge. But despite that, we still deliver a margin of around 24%. And we do think that that's quite a good outcome when you consider the magnitude of the headwind. And it should be repeated, as Alexander also said, that within this margin, we continue to invest properly in the business. And that brings me nicely on to the next slide, slide 26, about the 2026 margin. because we also want to update you on our latest thoughts about the EBIT margin target for 2026. Back in February, we communicated that we would be towards the low end of the 26-27% range, based on the commodity and foreign exchange rates back then. And as you can see on this slide, we have updated the bridge and currently expect to be landing at around 25% next year. And let me just talk you through a few points here on what's changed. First of all, and most importantly, nothing in the underlying business has changed. And the change of the margin that we show here remains a story about headwind from silver, gold and foreign exchange. Secondly, our mitigating actions to deal with these issues are progressing quite well and according to our plans. On pricing, you can see on the slide here that we now confirm around 180 basis points of benefit from actions that we've already taken. That's the extra pricing that we took back in October last year, as well as the extra pricing that we've just taken back in April. And I'm also happy to report that our cost efficiency program is running according to plan. And that we now expect an incremental margin uplift of 50 to 100 basis points next year in 2026. And the uplift from this cost program we have included in the purple block called net operating leverage and efficiencies. And that block also includes the operating leverage from the underlying business. Then between those two drivers combined, we expect a margin uplift of around 100 basis points, as you can see here. So, therefore, the only change since February is simply the fact that we now face a total headwind of 350 basis points from commodities and FX. And that's an increase of around 70 basis points since we last spoke back in February. I also want to flag that we took advantage of some volatility in the silver markets in early April, and then where we took the opportunity to hedge further out in 2026, and that we have now locked in around 70% of our entire P&L in 2026 at a spot price of $31. And to a large extent that then removes one element of uncertainty for the 2026 EBIT margin, but of course we still carry the sensitivity to gold and FX movements. Another way to read this bridge on the slide here is that despite 350 basis points of headwind, then Pandora can keep the margin unchanged at around 25% since 2023. That should give you some sense of our resilience in the business model. So we do live in a world where certain cost pressures have been part and parcel of operating a global business for some time. But our ability to leverage our business model, drive pricing and cost efficiencies to offset are constant as well. So in a way, it becomes a question of when and less of if we can catch up with large-scale external cost pressures. And in that connection, we would like to stress that while reaching the 26% EBIT margin already next year in 2026 looks challenging, it is something that we still hold a longer-term ambition to deliver. And we will revert with more concrete plans on that in due course. And then please move to slide 27. So finally, from me, we thought it would be helpful to provide a bit more context on the tariffs. So we have three key sources of tariff impact. First of all, it's about, not surprisingly, our jewelry. And that's mainly a question of the tariffs on Thailand when you import that into the U.S. Secondly, we are sourcing point of sales material and visual merchandising in China. And thirdly, we are shipping currently jewelry to Canada and LATAM through the U.S. Fortunately, we can confirm today that we can essentially mitigate the last two of those sources of tariffs, because we can change most of the sourcing of point of sales material and visual merchandising into the US to other countries during the next six months. and from early 26 we will be able to ship directly to Canada and Latin America. We were fortunately working on these mitigating actions anyways before April 2, and in a way we are now just accelerating implementation. So in six months time that means that this essentially leaves an exposure on the tariffs level imposed on jewelry imported from Thailand to the US. And we clearly do not know how this is going to play out. And in a such a situation, we think it's natural to look at scenarios instead. So we have provided two potential scenarios on the slide here and the related cost impact. And I'm not going to talk them through in detail, but you can see the numbers on the slide. And we are happy to take any questions or maybe better on a follow up call afterwards. So the numbers here that we show on this slide include two of the three mitigating measures that you can see on the right of the slide. On top of these two, we will, of course, look at additional price increases. But to what extent we are increasing prices as a response, how much and how fast, all depends on what tariffs are ultimately implemented. But the point is that the final EBIT impact could be smaller than what is shown here, because the numbers, just to repeat, only include the pure cost mitigating actions. So if scenario one plays out as an example, then you could even say that perhaps the final impact could be quite negligible after we have made our pricing adjustments. And I also want to highlight that even in the more extreme scenario too, the business, even though there will be an impact, then the business will remain very profitable and generate a significant amount of cash. And with that, I'll now hand it back to Alexander.