Pandora A/S Ord

Good morning, everyone, and welcome to the conference call for Pandora's Q1 2026 results. I'm Bilal Aziz from the Investor Relations team and I'm joined here by our CEO Berta de Pablos Barbier, CFO Anders Boyer and the rest of the IR team. As usual there will be a Q&A session at the end of the call. If you could kindly limit yourself to two questions at a time that would be great. I also would like to draw your attention that at 12 o'clock CET today there will be a national Danish emergency alarm system test so you might hear some background noise but hopefully that doesn't interfere. Please pay notice to the disclaimer on slide two and turn to slide three. I will now turn over to Berta.

Thank you, Bilal, and welcome, everyone. I am going to first start with a brief summary of our quarter one performance before turning to an update on the strategic initiatives we outlined back in February on how we were going to re-energize growth. So let's start. In quarter one, the quarter played out broadly as expected. we deliver 0% life-for-life growth and 2% organic growth. We deliver this in a challenging consumer environment, and yet we are clear that there is more we can do to drive a stronger life-for-life growth, and I will come back to that. On profitability, EBIT margin remains solid. This continues to reflect our high gross margins, where efficiency gains continue to offset most external headwinds. combined, of course, with tight control of our OPEX. Finally, returns remain high at close to 40% despite the external environment. So please, let's move to the next slide. Turning to guidance, we are maintaining both our top line and EBIT margin guidance. For the top line, we continue to target organic growth of minus one to 2% with light for light growth of minus three to 0% and network expansion of around 2%. We have started the year toward the upper end of this range, which is a solid start. That said, it is still early in the year, and the external environment remains uncertain. Since we last reported, the geopolitical backdrop has become more volatile, and the implications for consumer demand are not yet clear. Given this, We believe it is appropriate to maintain our guidance at this stage. At the same time, we do see the need to step up execution across a few areas. The benefits of this will progressively build over time. On EBIT margin, we continue to target 21 to 22%. This implies a broadly stable margin versus 2025, when adjusting for external headwinds, which reflects continued investment in the business while still maintaining a high level of profitability. In terms of current trading, we are tracking around flat so far, flat life or life growth in this quarter. So let's move this to the next slide. Now, let me just do a very brief recap of what we covered back in February, and you probably recognize this slide. I am not going to go into detail today, but it's important just to set the basis. Our vision is to be the most desirable accessible jewelry brand. We do see significant headroom to deliver sustainable long-term growth in Pandora. This translates into three clear strategic shifts across design, marketing, and go-to-market, alongside progress on the new materials. Overall, the priorities are very clear for us. Accelerate life for life growth while protecting profitability. So let me just show how we are starting to deliver again this, and we'll see that on the next slide, please. This chart is as well something that you will recognize from the full year results. and it's showing how we are evolving our growth engine. The three areas that I mentioned, design, brand, and market, and we are already starting to put this in motion. We are not standing still. On design, the priority is to re-energize our collections. Product development takes, of course, time, but it's a clear focus, and we are accelerating where possible. I have a couple of examples later on. We have appointed a new chief product officer, Philippa Newman. She is reporting directly to me and elevating design is a central driver and a clear priority for her. Later today, I will introduce a new program, Pandora Wonders, that is designed to step change creativity and the perception of our craftsmanship. On brand, we have already started shifting towards activation-led engagements. with earned media as a core KPI. So, investment is already being reallocated towards channels and activations that are focused on driving cultural impact and earned reach. Last but not least, on markets we are moving towards a model that is more calibrated by market maturity, supported by stronger local capabilities. Just to name one example, in Italy, a key market for us, we have already started to refresh some visual merchandising, update layouts on our store to better showcase our collection and some new introduction plan. We are confident this is how we will drive growth going forward. So let's go please to the next slide. This is again, you will recognize this is the key is starting with design. Remember that I mentioned last time that when you look at the left-hand side, which is where we operate today, a large share of our business sits within a relative narrow aesthetic space in the market. It is what we are calling playful, where our main, our core sits, especially our moments collection. So, this is where the portfolio is most mature and where our design effort has been focusing on. But growth. is coming from elsewhere. Underrepresented aesthetics, while smaller for Pandora today, are big in the market and thus deliver a disproportionate share of incremental growth when we invest behind them. The direction is very clear. First, we need to refresh the core with more distinctive design in our largest business. Second, we build depth in underrepresented aesthetics where the growth opportunity is higher. We have already started, we are already seeing early signs. Talisman that was launched last year continues to drive growth. And the Bridgerton Limited Edition is another example of something that we introduced in quarter one. Now, the opportunity is to scale this more systematically across the portfolio as part of our Evolve growth model. We are accelerating this work with impact building progressively from 2026 and more meaningful from 2027. Can we please go to the next slide? So building on that, we are starting, as I was saying, to bring this to life. As we have outlined, we are increasing distinctiveness across our collection. This is a new program that will be introduced in a couple of weeks. We call it Pandora Wonders and it's a key part of that. Pandora Wonders is a multi-year platform to elevate desirability and drive demand through a step change in creative expression. So each year, we will partner with a leading creative voice to reinterpret the materials we work with and how we craft them through limited edition capsules. This is intended to drive excitement, traffic, and reinforce our growth model of distinctive newness and earned media. We will start with Act 1, which will be a playful reinterpretation of the organic pearl. It will be brought to life through a signature artisanal technique that is the pearl micro-piercing. Now, we are building this platform over time, so you will see more coming every year. You will hear more as we do, and as you may notice, we are not focusing on silver, but bringing a new material to Pandora that we are showcasing. A second piece of the news today is that we are adding carbon footprint labeling to our lab-grown diamonds. This means that consumers will be able to see the climate impact of every Pandora diamond and compare that with a mine diamond. And the CO2 emissions of our diamonds are 90% lower than a mine diamond. So Pandora is about being accessible. And being accessible is also about being transparent. We do think that this will reshape how the environmentally conscious consumers will be choosing within the category. And as the leader, we have to be present providing the facts. We are actually presenting this today as we speak at the Copenhagen Fashion Summit, along with one of our ambassadors, Pamela Anderson. And if you want more information, everything is now on our website if you are interested. Now, let's move to the next slide, please. I mentioned earlier that my second priority is clearly to protect our profitability. You know that a key lever here is our response to rising silver prices. In February, we introduced platinum-plated jewelry on our proprietary Evershine alloy. As you know, the alloy has been optimized for platinum plating, delivering a strong durability, including tarnish and water resistance, as well as being hypoallergenic. So for consumers, as I mentioned before, This brings platinum, which is a precious metal, into a more accessible format, which improves everyday use. Now, this launch was prepared over the last year, 2025, with extensive consumer testing and validation that confirmed the strong acceptance of platinum plating within the white metals. So later this year, we have selected designs that will be introduced, and I remind everyone that the broader rollout will happen from 2027. We will be the first jewelry brand to bring platinum plated jewelry to scale. Now it's important to know that plating is not new to Pandora. Today over a third of our sales already come from outside silver. So plating today is pretty much a quarter today of our sales. So we've been operating plating at a scale and high quality already for several years. This is a capability that we already run across the business. This is all I was planning to detail in terms of the strategic update. So I think it's good time now to turn to the quarter one performances. For quarter one, we delivered flat life-for-life. You can see the growth speed between the core and the fuel with more here. In the core, we delivered minus 1% life-for-life growth. This was supported by good growth in our distinctive design, Talisman, and the limited edition Bridgetons. But of course, this decline also underpins the need to refresh the rest of the portfolio, which is what we are working on and we have already identified. For Fuel with More, we deliver 1% growth, which was supported by the new collections of Pandora Essence and newness in Timeless. Let's move to the next slide. As I mentioned earlier, as part of our strategy, in addition to design, is how we bring the brands to market. We are becoming more deliberate in how we use cultural activations. Bridgeton was only one example. But you see that in Quarter 1, we partnered with Cat's Eye to support performance in Minis, the Minis collection. We activated new brand ambassadors across selected markets. As going forward, earned media impact will be a key metric for us. And these are just early examples about how we are applying this approach. The focus now is to scale this more systematically across the group, combined with a strong product execution. Now let's go to the next slide. Here you can see how we've been executing Bridgerton. It's a good example of what we mean by cultural relevant collaboration. It's not just a partnership. But it's about being fully integrated into this cultural moment. It's about using talent from the show in our campaigns. It's about integrating our products into the show. And it's working in close collaboration with Netflix for the release day of the show. This is why this has resonated globally and actually performed ahead of plan. The global Bridgestone activation ran across more than eight markets, dropped 6% increase in earned media value through PR and influencers, and by the way, 11% on the key titles that really have a strong visibility. So, importantly, we saw how all this activation translated into demand across the broader assortment, both in a store and online. Very important as well, we over indexed with Gen C, and we also saw higher cross-shopping, So a clear halo effect that actually Timeless benefited from. So this approach, of course, will not be a one-off. We are now scaling the model across markets and collections, leveraging our design capabilities and making sure that we benefit from our vertically integrated business model to execute consistently at a scale. And you will see every quarter more plans on this. Let's go now to the next slide, please. Now, of course, being in retail, we can also need to touch on the in-store experience. We are also working extensively to elevate this. We are including piloting new formats with an updated visual merchandising. We are working on bringing more curated and clarity of our collections, a clear aesthetic segmentation that is designed to drive sales beyond charms and making sure that the new customers that come into our store can see what Pandora is all about. Now we are testing in Italy between other markets and the plan is to scale that more broadly over time. In parallel, we are rolling out our digital screens across store facades to better showcase our collection and to strengthen our storytelling with the objectives of drive traffic into our stores. We also have plans to open flagship stores in Barcelona and in Milan later this year. This will showcase the full breadth of the Pandora brand. It will elevate storytelling and it will set a new benchmark for the customer experience. Let's move to the next slide, please. And I would like to finish before I pass it to Anders on our regional performance in quarter one, which was, as you can see, somehow mixed. If we start with the EMEA region, our largest region, we deliver a 2% life-or-life growth, broadly stable sequentially. In Spain, Poland and Portugal continued to perform well, but this was more than offset by weaker performance in Italy and the UK. And you can see, of course, that the performance was minus 2% life-or-life. In Italy, we have now implemented a new go-to-market approach, This includes shifting marketing investments away from traditional video towards influencer, PR, and more locally relevant activation. In North America, similar to EMEA, growth slowed down to minus 2% and performance was impacted by lower store traffic, which really reflect a softer consumer environment. The brand remains healthy. And we will continue to drive traffic through targeted brand activations. I just touched on some of them before. Now, in Latin America, the life of our growth accelerated to 6%. There, the price repositioning was introduced early this year. And it's now in place. We also drastically reduced promotion. And all this is driving positive results. We are, of course, supporting this. with a strong local activation, influence, and engagement in line with our evolved growth model. And finally, in Asia, we delivered a strong growth of 12%. Our rollout in Japan continues to progress very well. Yes, we do remain in the early stages of building the brand awareness and reach there through increased marketing engagement, but nevertheless, it's an encouraging start. And with that, I'm very happy to pass it over to Anders.

Thank you very much, Berta. Good morning, everyone. Please turn to slide 19. Berta has already commented on the top line KPIs. I'll just focus on a couple of the other metrics. And the key messages from us today is that we continued to manage the quite significant external headwinds in an effective way here in the first quarter and our core P&L balance sheet and cash metrics remained healthy. In Q1, our gross margin ended just below 80% at 79.5 and thereby it was down only 90 basis points versus last year driven by the external headwinds of actually almost 400 basis points from the tariffs, foreign exchange and the higher commodity prices. And this cross margin performance was held by good cost efficiencies in our vertically integrated value chain, some promo detoxing as well as some cost phasing as well. As you can see in the table, we've shown two KPIs for working capital, including and excluding commodity hedging. And the 6.5% net working capital includes some significant unrealized commodity hedging gains, just like in the last quarter. So to understand the performance it's better to look at the KPI excluding commodity hedging and here you can see that working capital is around 3.5% and roughly the same as last year. Speaking about working capital, we would like to add some words to the inventory development during 2026. As you probably recall from back at the full year announcement in February, we did not initiate a share buyback program because of the increase in commodity prices. And the commodity prices impact the business in two ways. It will impact earnings, mainly next year in 2027, until the transition to platinum plated is completed. And it will also impact inventories and thereby cash flows, and that happens already this year, as you probably know. At the current spot prices, inventories by the end of 26 will increase by around 2 billion Danish kroner year over year due to the commodity prices. On top hereof, we need to hold more inventory during the transition to platinum plated jewelry and we are making a few selected investments in inventory to improve stock availability. So, all in all, inventories by the end of this year, in the 26th, will increase by up to 3 billion kroner versus last year. Now, it's important to know that this is mostly a temporary impact during the transition. As we complete the transition to platinum plated jewelry, inventories will of course come down again. The exact sequence and exact timing is still in the making, but we wanted to make sure that you have this overall storyline. Next slide, please. Here, on slide 20, we break down revenue growth in the quarter. Bert has already covered the key elements on light for light, but on the network expansion, And that's the purple building block sitting at 3% in the quarter. That continues to track well and the contribution in the quarters was largely due to the revenue from store openings last year ramping up quite well. Next slide please. On the EBIT margin our performance was solid, down only around 100 basis points. year over year, despite over 400 basis points of external headwinds, as you can see in this bridge. As some of you have probably noticed, we did end a bit higher on the EBIT margin than our own expectations for the first quarter. And we did see a combined cross-facing benefit of around 200 basis points in total in the quarter. That's straight across a couple of P&L lines. And it's partly related to lower re-mail cost that sits in the cost of goods sold and to lower marketing which ended 140 basis points below last year as a percent of revenue. But this will be neutral for the full year of 2026. We are keeping a tight control on our cost in this subdued revenue environment, and our OPEX ratio was basically flat year over year on a constant currency basis. We've been executing on the Silverstone cost program, and it's good to see those savings coming through to help the bottom line. And then please go to slide 23. As Berta already said, we've left our organic growth guidance unchanged. On a like-for-like basis, we started Q1 at 0% like-for-like, and April has been roughly in line with that. So clearly we are trading at the higher end of the like-for-like guidance range of between 0% and minus 3%. So a couple of comments to why we leave the guidance unchanged. First of all, it is obviously early on in the year Secondly, the consumer environment remains weak and the border macro risk has not become lower since we initially guided back in February. On the contrary, you're all aware of the geopolitical backdrop and that obviously increases uncertainty going forward for consumers. We don't know how this will play out, so you should read our guidance range to account for some of this macro uncertainty. Thirdly, we are indeed working on quite a few initiatives to drive a step change in light for light growth. We've seen some positive signs in Latin America and in Asia already, and we're working on measures in other important markets as well. But these initiatives will take time to feed through into a tangible improvement in like for like. And as we said back in February, 2026 is very much a transition year. Next slide, please. On the EBIT margin guidance, we've left things unchanged at 21 to 22% margin. That's a few moving pieces within that guidance, but it all nets out to no overall change. But let me just quickly comment on the underlying moving pieces. First of all, on the tariffs, the headwind is a bit lower due to the 150-day pause at a 10% tariff rate. After that 150-day pause, we assume that tariffs move back to the original 19% rate on Thailand. Secondly, we have lowered the upper end of the range for the headwind from commodities by 50 basis points to now sit between 1.5% and 2% headwind. And that's because the hedge ratio for this year is now between 95% and 100% versus previously between 90% and 100%. And finally, you will also note that we have accounted for some one-off costs amounting to between 50 and 100 basis points related to the transition to platinum-plated curing. And that includes, among others, additional resources that we need to drive this forward at high speed. Some inventory write-downs, some tech investments, etc. And that's one more thing that we wanted to make sure you are aware of in terms of the EBIT margin. We mentioned back in the full year announcement that the guided decline in the EBIT this year would be most visible in Q1 and then gradually improve sequentially. But due to this cost-facing that I mentioned earlier on, which helped the first quarter, this has changed things slightly, and we now expect the year-over-year decline in the EBIT margin to be most visible in the second and third quarter, and then be much less material when we get into Q4. Next slide, please. Now we will transition a significant part of the business from silver to platinum plated in the years to come. And we thought it would be good to help you visualize this transition a little bit better. The chart on the right on this slide is meant to help you visualize the transition to platinum plated. and the related reduction of our exposure to silver. And just a few comments on this. As a starting point and in line with what we said previously, we will transition 80% of the silver revenue to platinum plated jewelry. So that's 80% of the 65% number that was shown in the left column on the slide here. Then in 2027, we will transition roughly half of that 80%, and that's the red part of the middle column. And then in 2028, we will transition the remaining part of that 80% from silver to platinum plated. The endgame after the transition to platinum plated will be that our P&L and margin exposure to commodity prices will reduce significantly. And that's because the exposure to silver will decrease far more than the exposure to platinum will increase. This lower commodity exposure will be partly offset by higher labour costs as it requires more crafting time to work with plating. but labor cost is a more stable and predictable cost element than commodities. Next slide, please. So let's see what this transition means for Pandora's profitability. And some of you will remember this bridge from back in February. We are on track. There's no change to the message, so I won't spend too much time on this slide. But we want to emphasize once again that with this transition, Pandora will remain a structural high margin company. And you can see that on the slide to the far right, where we show that we expect to get to more than 21% EBIT margin in the midterm. So in essence, this means that there will be no fundamental changes to our financial model. As you saw in the previous slide, the transition to platinum as such will probably be finalized during 2028. But before we get production scaled, optimized and fine-tuned to the level where we will hit the above 21% EBIT margin, we need a little bit more time. For 2027 specifically, we continue to target an EBIT margin of at least 14% before one-off costs and at least 12% including those one-offs. And we know that some of you have already noticed that the bridge here is based on a silver price of $82, which is where the prices were when we initially issued it back in February. The spot rate this morning is a little bit lower, but it doesn't change the overall messaging. Because remember that during this transition, our sensitivity to silver in 27 will drop to around 14 basis points of EBIT margin for every one US dollar move on silver prices. down from 30 basis points just a few years back. And that sensitivity drops even further to about six basis points after the transition. And on that note, I will hand back over to Greta.