Pandora A/S Ord

Good morning, everyone, and welcome to the conference call for Pandora's Q3 2025 results. I'm Bilal Aziz from the Investor Relations team, and I'm joined here by CEO Alessandra Lacek, CFO Anders Boyer, and the rest of the IR team. I'm also really happy to have with us today CEO-designate and current CMO Berta de Pablos Barbier. As usual, there will be a Q&A session at the end of the call. You could kindly limit yourself to two questions, and at a time, that would be great. On that point, I will hand over to Alessandra on slide three.

Thank you Bilal and welcome everyone. Let me start with a few high level points on our business. So we've been operating with very challenging macroeconomics actually for a while now. But even in this difficult setting, we continue to execute on our strategy and repeatedly deliver solid organic growth. The strategy centers around investing behind the Pandora brand and bringing more exciting innovations to our consumers. This will help keep us relevant today and will drive value for us well into the future. Our business model and financial algorithm remains incredibly healthy. You can see that in our gross margin still operating close to 80% despite the macro headwinds. We keep having very healthy margins. We keep generating significant cash flow and we keep driving healthy EPS growth. These points are also clear when we look at Q3. So now let's have a closer look at the quarter. Next slide, please. Again, we did a good job in a tough backdrop. We have maintained good discipline on the Phoenix strategy and our overall mission to build a full jewelry brand. We delivered 2% like-for-like growth, which alongside network expansion drives 6% organic growth. The like-for-like growth has been a bit below our usual run rate over the past few years, obviously not helped by the broader macro and consumer sentiment. But we know what to adjust and we have a healthy pipeline of growth initiatives. On profitability, we're impacted by external headwinds from tariffs, foreign exchange rates, and commodities. In that light, we're very pleased with the profitability of the group, with gross margins, as I mentioned, just around 80%. The underlying performance is even stronger, so our core profitability drivers offset a lot of the external headwinds. Finally, our return on capital remains very high at 43%, something you should generally expect from us. On EPS, we continue to drive good underlying growth. So overall, quite a satisfying quarter. Now, let's have a look ahead. Can we move to slide four, please? On guidance, we've generally left things unchanged, but with a few tweaks. From a top-line perspective, our guidance is still for organic growth of 7 to 8%. For the like-for-like guidance, we're now expecting that to be 3 to 4% versus 4 to 5% previously. And there's a few things to highlight there. First, due to the broader macroeconomic situation, we've changed the like-for-like range slightly, as I mentioned from 4 to 5 to now to be 3 to 4. The low end of this range would require a worsening of the macroeconomic situation. We are also mindful that the holiday season can be quite promotional, so we've built in some room for that too. On network, our new stores are performing a bit better than expected, so we have raised our expectations to a 4% growth contribution as opposed to 3% previously. Therefore, in total, our organic growth guidance of 7 to 8 remains unchanged, albeit, as I mentioned, with a slightly different composition. I'll let Anders talk about some of the specific details here later on. Finally, that brings me on to current trading. In October, our like-for-like trading has been around 4% and thereby above the Q3 level. So, an encouraging start to the quarter. On the EBIT margin guidance, the message is that it's unchanged at around 24%. We have managed to absorb, quite frankly, an insane amount of headwind this year and are very pleased that we can still target an EBIT margin in the mid-20s. I actually think that's a fantastic outcome and a true testament to the health of our business model and the agility of our organization. Can we move to slide seven, please? Our strategic focus is to attract more consumers to the Pandora brand by broadening our appeal as a full jewelry brand. Our North Star is the Phoenix Strategy and the pillars you can see on this slide. This year, we've started to dial up our focus a bit more on the two aspects you see on the top of the wheel, brand and design. This is something that will continue into 26 and beyond as well. That brings me nicely on to the next slide. I already showed this last quarter, but I'll highlight it again. It shows how big the growth opportunity is for us beyond wristwear. As a brand, as you know, we come from mainly operating in around 18% of the market. Increasingly targeting the other 82% of the market is what makes our growth profile really exciting. You see the main elements of the Phoenix strategy on the previous slide. We are sharpening some of our execution to attract more consumers to the brand and drive like-for-like growth. Some of you may remember from last year that I mentioned how our focus will naturally shift towards design and brand. This includes really looking to dialing up our innovation pipeline and marketing efforts, something Berta also fully endorses. The launch of Talisman and Mini's sub-collections are good examples of how we drive incremental newness that brings excitement to the brand. You will also see us dialing up our relevance on a more local level through the use of some assets that reflect our brand values. And then last, but certainly not least, we see opportunities to optimize our in-store experience. I'll come back to that a little bit later. Now let's have a closer look at our marketing. Next slide, please. Here are some examples of what we've been working on actively through Q3. That gives you a taste of what's to come in the future. From a marketing standpoint, it's fair to say we've made a big impact already with our Talisman launch. The press and media coverage of the collection has been fantastic and initial consumer reactions are also very positive. You will remember how in the previous quarter we mentioned we would also be looking to dial up our brand heat on a local level. Pandora is and will always be a global brand, but there are clear areas where we think we can be sharper and even more relevant to consumers on a country level. We've started to execute this already in some markets and see good impact. This is something we will continue building on. Before I move to the next slide, I also want to comment that our new Christmas campaign is now live. It's a campaign that is more rooted in Pandora's true DNA, driving meaningful moments. And we're super excited for that. So please keep an eye out for that. Next slide, please. I mentioned earlier on in the year how we're excited about our creative pipeline. This year we focused the newness in our charms and carriers core. It's always important we keep this offering fresh and front and center of our consumer minds. We did that through the introduction of our Talisman and Minis collection, and so far most of our media efforts have focused on the Talisman. I mentioned previously that the media coverage of our launch has been very successful, and we've also seen this translate into the actual stores. The Talisman collection has resonated very well with consumers, with good initial results in all markets. It's still a relatively small collection from a design variation perspective, but the consumer appetite to engage has been incredibly pleasing to watch. This demonstrates how we can continue to drive consumer engagement with our unique combination of innovation, affordability and storytelling. Now it is our job to build on this momentum, something I know Berta will have a sharp focus on going forward. Next slide, please. Now, innovation doesn't just limit itself to new designs. It stretches all the way from optimizing current designs over crafting methods to new material innovation as well. We are advanced in exploring creative innovation that is anchored in our distinctive DNA as a precious metal jewelry brand in the space of accessible luxury. This innovation will allow us to mitigate a material part of the cost headwind we face from higher commodity prices, in particular on precious metals. Our consumer research here has been encouraging, very encouraging in fact. And let me be clear, everything we do is being led from a consumer standpoint. That's the center of gravity for us. Pandora's brand DNA is to provide beautiful, high-quality jewelry that is accessible to the many. I won't be more specific at this point in time for competitive reasons, but of course, we will keep you updated when the time comes. In conclusion, we're excited about the opportunities ahead to keep driving our business model forward. Next slide, please. Let's now 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 I mentioned earlier, the newness we have is impacting within the Core, which helped support growth here at 1%. The new sub-collections we have launched are within the Pandora ME, which delivered quite strong like-for-like growth of 34%. You can see once again how over the past three years we've been able to drive good, stable growth sequentially in our core, exactly in line with our plans. Next slide, please. Our fuel with more segments grew at 2%. That's probably a bit lower than what we would have liked. But as I just mentioned, this year our creative newness has been more tilted towards the core, so there always will be some small swings. We have good upcoming plans for this segment in next year. Let's now move on and have a look at the markets. Next slide, please. As always, I'll start with our biggest market, the US, which delivered a strong 6% like-for-like growth. This performance is particularly impressive of the tough comps we face in the US. Our brand metrics are very strong here. The response to our new Talisman sub-collection has also been very positive. As with all markets, our attention now shifts to the holiday season, and we've started Q4 in our largest markets in a pretty good shape. Next slide, please. In Europe, our total like-for-like growth across all markets came in roughly flat at minus one. We continue to see strong growth in Poland, Spain and Portugal, to name a few, where the brand is going from strength to strength. Performance in these markets was somewhat offset through weakness in our four European markets that we have historically disclosed separately. I'll pick out a few specific points. The overall environment remains tough in many European markets, but we will also sharpen our execution in few of them. The first signs of that can be seen in Italy, where I mentioned that we've leveraged some more local marketing to drive brand heat, and the new sub-collections have also seen good consumer interest. We've started to see pickup in traffic now in Italy, which is the first important sign we always look at. We will also leverage this strategy in some of the other markets. In the UK, our like-for-like growth remains soft at minus 8, not helped with the performance of our online platform. We are working on fixing this whilst pushing forward with our brand and product initiatives. Finally, Europe will also dial up our affordability proposition a bit better. The launch of MINIs is certainly helping with that. But as I mentioned in the past quarter, we are realigning the pricing architecture slightly in some markets. So overall, our European growth remains somewhat mixed, but we have a plan. We're executing on this and we see first signs of improvement. Next slide, please. In the rest of Pandora, we delivered another good quarter of 6% like-for-like growth. This was helped by some of the markets I mentioned in the previous slide, namely Spain, Canada and Portugal. But moving beyond Europe, Japan continues to do very well and is showing very strong like-for-like growth as we're beginning to build the brand presence out here. In Mexico, we saw good improvement due to some of the actions we're taking. This is despite the highly promotional environment in that market. We are confident that our improvement continues into Q4. Finally, in Australia, we saw continued good like-for-like growth of 4%. We had solid performance through the quarter and are also investing in the brand for the long term here. Next slide, please. Here you can see a familiar slide on how we create value from our network. We're broadly on track with our openings this year, targeting around 50 net openings by the year end. As I mentioned, reflecting the good revenue ramp up we've seen from the openings from the past 12 months, we've upgraded our organic revenue contribution to be 4% from previously 3%. That should give you a good indication of how quickly we do see revenue pick up in new stores. We have little to no cannibalization from existing stores, as we typically open up in pure white space areas. Of course, the number of 50 openings might look low this year, but keep in mind that's net of the 100 closures in China. The latter do not impact revenue significantly, so we expect the gross openings to also contribute nicely to revenue into next year. As always, you'll see on the top of the slide, the economics of new store openings in Pandora. A fantastic aspect of our business is our highly productive stores, generating very strong shareholder value. Next slide, please. Finally, before I hand it over to Anders, I just wanted to highlight that we continue to sharpen our in-store execution. Part of this comes from the new store concept, which we now have sitting at close to 700 stores, but we've also decided to enhance the store design and layout to attract more consumers. This includes enhancing visual merchandising and elevated facades. We're also accelerating the adoption of a new digital window framework, which 80% of our stores should have already by the end of next year. Whether it's the flagship stores or the new formats, it's pretty clear that we have an exciting opportunity to improve how the full jewelry brand comes to life in our stores. And on that note, I'll hand it over to Anders for a closer look at our numbers.

Thank you, Alexander. And good morning, everyone. Please turn to slide 20. Our reported financial performance is impacted by the significant external headwind from commodity prices, foreign exchange and tariffs. And this obviously distorts the picture when you look at the reported numbers. But if you look at the underlying performance, you actually see that it remains very strong. On the gross margin, for example, we had 280 basis points of combined external headwind in the quarter, but the reported gross margin was down only 80 basis points to 79.3. And that means that our actions through pricing and cost efficiencies had a strong positive effect in the quarter. So even despite all of these headwinds, we are on track for a full year gross margin to be only slightly down versus 2024. I'll talk about the EBIT margin shortly, but the other KPI I'll mention on this slide is earnings per share. The reported EPS is down year over year in the quarter. But again, if you adjust for the FX headwinds, then we are driving quite nice EPS growth of 5% in the quarter. I normally don't like to talk about adjusted KPIs, but in a quarter like this, you need to look underneath the reported numbers to understand what actually goes on. And when you do that, you will see that our financial algorithm keeps running well. Next slide, please. On this slide, we break down the revenue growth in the quarter, and we have commented on most building blocks already, so I'll just add one comment to like for like. Like for like growth in the full third quarter was 2%. But as we launch the Talisman and Minis collections towards the end of August, and as we continue to evolve execution in the other areas we have talked about today, we have seen like for like improved since this summer and then reached 4% in October, as Alexander said. Next slide, please. I've already mentioned the external headwind that we faced on the gross margin, and those headwinds obviously also feed into the EBIT margin, but at an even higher level. You can see those headwinds in the dotted box here with a total of 380 basis points of external headwinds. And without these headwinds, the EBIT margin would have been 17.8% in the quarter and up versus last year. As you can see in the purple boxes on the bridge, these headwinds were partly offset through the effect of network expansion, pricing and cost efficiencies. The EBIT margin in the quarter ended exactly in line with the plan. And as you can see, we therefore also keep the guidance for the year unchanged. And then please go to slide 24. This slide explains our top line guidance for 2025. Alexander already spoke about our thinking, so let me just elaborate on a few points. The overall organic growth guidance is unchanged at seven to eight, but the composition has changed slightly. We've lowered the like-for-like range to be three to four percent versus four to five percent before. Since the start of the year, the macro economic picture has become more clouded and uncertainty has increased. And we did see softer trading during the third quarter. And this has made the old high end of 5% like for like a bit too ambitious based on how we see the world today. On the low end of the new 3-4% range, we have factored in a potential further macro weakening in the fourth quarter and a potential more intense promotional environment during the holiday season. And we think that's prudent given the environment that we see. As you have probably calculated, the new like-for-like range implies a like-for-like growth of around 2-4% in the final quarter of this year. And as we said, we started the fourth quarter with 4% like-for-like in October and thereby in the upper end of the implied range. And finally, on the network growth, as Alexandra already mentioned, the new stores we are opening are ramping up faster than expected. So we expect to land closer to a 4% growth contribution for the full year as opposed to 3% previously. Next slide, please. On the EBIT margin for 2025, our guidance is unchanged and we still expect to land around 24%. And the building blocks that you see on the slide here are also broadly unchanged. But again, I would like to draw your attention to the 280 basis points of headwinds, which sits in the dotted box in the bridge on this slide. And in that context, we are actually quite pleased with an EBIT margin of around 24% this year. Finally, I just want to give you an update on our latest thinking about the 2026 EBIT margin, given how commodity prices keep moving. And also here I want to highlight the total external headwinds since we issued the EBIT margin target back at the capital market day in October 2023. And they now amount to a total quite significant headwind of 620 basis points. And that's the sum of the headwinds from commodity, foreign exchange and tariffs, as you can see in the dotted box in the bridge. Given the recent surge in commodity prices since we last reported to you in the second quarter, we see an additional 120 basis points of EBIT margin headwind next year in 2026. And that takes the target to around 23% for next year versus the at least 24% that we spoke about in the last quarter. Our mitigation efforts are tracking exactly as planned. On pricing, we continue to expect the benefit of around 210 basis points. On the cost side, we are moving ahead full speed on the cost program, which we call Project Silverstone. and we are executing as we speak and at this point in time we still expect savings equivalent to a 50 to 100 basis points margin uplift in 2026. And then finally, but important, as Alexander mentioned, creative innovation has the potential to mitigate a material part of the EBIT margin headwind when you look beyond 2026. And thereby also has the potential to protect our high margins and protect our strong financial algorithm.