Pandora A/S

CSE:PNDORA

Earnings Call Analysis

Strong Start to 2024

Pandora's first quarter of 2024 saw an impressive 18% organic growth, including an 11% rise in like-for-like sales. This surge outpaced the generally sluggish jewelry market. Investments in brand strategy are evidently paying off as Pandora continues to reshape consumer perceptions into recognizing it as a full-fledged jewelry brand.

Guidance Upgraded

Given the robust Q1 performance, Pandora has raised its organic growth guidance for the year to 8%-10%, up from the previous 6%-9%. Like-for-like growth expectations are set at 4%-6%. Despite the optimistic outlook, the uncertain macroeconomic backdrop has Pandora cautious about year-end achievements, especially if economic conditions worsen.

Expanding Profit Margins

Pandora’s gross margins expanded to a record 79.4% in Q1, and without the drag from forward integration, it would have exceeded 80%. The company maintains its EBIT margin guidance at around 25%, emphasizing sustainable high-profit margins due to its vertically integrated business model.

Driving Future Growth

Pandora continues to invest in growth initiatives, including enhancing its brand presence and expanding in key Asian markets such as Japan and South Korea. The EBIT margins for Q2 and Q3 are expected to be slightly lower year-on-year due to these investments, but an uptick is anticipated in Q4.

Sales Performance by Market

The U.S., Pandora’s largest market, reported 9% like-for-like growth, bolstered by strong brand initiatives. Germany saw an exceptional 67% like-for-like growth driven by increased brand penetration. Conversely, China experienced a 17% drop in like-for-like sales, although Shanghai performed comparatively better.

New Store Concept and Network Expansion

Pandora’s new store concept, Evoke 2.0, has seen positive consumer engagement, contributing to like-for-like growth. The company aims to open 100 to 175 stores in 2024, expecting a 4% organic revenue contribution from new openings. North America remains a significant contributor to network expansion.

Sustainability and Profit Distribution

Pandora remains committed to high shareholder returns, aiming to pay out approximately DKK 5.5 billion in 2024, equating to about 6% of the market cap. The company’s strong cash generation capabilities support this strategy.

Brand Transformation and Market Strategy

The brand’s restaging under the ‘Be Love’ campaign aims to shift consumer perception towards Pandora as a full jewelry brand. Early indicators suggest consumers are responding well to this change, with the introduction of global ambassadors Chloe and Halle Bailey enhancing brand desirability.

Earnings Call Transcript 2024-Q1

[Bilal Aziz, executive]

Good morning, everyone, and welcome to the conference call for Pandora's first quarter 2024 results. I'm Bilal Aziz from the Investor Relations team, and I'm joined here by our CEO, Alexander Lacik; CFO, Anders Boyer; and the rest of the IR team. [Operator Instructions]

Please pay notice to the disclaimer on Slide 2 and turn to Slide 3. I will now turn over to Alexander.

[Alexander Lacik, executive]

Thank you, Bilal, and welcome to everyone. Let me start by highlighting some of the key messages for the quarter.

First of all, we had a very strong start to the year, with 18% organic growth, of which 11% comes from like-for-like growth. Putting this into context, the jewelry markets around us remain rather tepid. So we think this is a great achievement. It's also great to see that our investments into our strategy are consistently paying off. Some of you will remember that our brand strategy centers around changing the perception of Pandora into a full jewelry brand.

Our Q1 growth comes broad-based across our collections, which is exactly in line with our strategic intent of growing the core, while growing even faster in the few more segments. Meanwhile, you would have noticed that our gross margins expanded to a record high and continues to demonstrate the benefits of our vertically integrated business model.

We've also flagged that, like last year, we would scale up investment to drive current as well as future growth ideas. This is taking place, but our EBIT margins expanded slightly in the quarter, reflecting the strong growth we saw. And of course, all of these KPIs feeds into our unique asset-light model, where we continue to demonstrate very high returns, whilst maintaining low leverage.

So in conclusion, it's been a very good start to the next part of our Phoenix chapter. We've continued to make investments into our business and are yielding good results across the board.

Now let's move to Slide 4, please. Given the strong start to the year, we are raising our organic growth guidance for 2024. This now stands at 8% to 10% and includes like-for-like growth of 4% to 6%, which is exactly in line with the midterm CAGR target we provided at the Capital Markets Day last year.

As always, we've taken a number of factors into account. We've got good momentum. But against this, the macroeconomic backdrop is still highly uncertain and it's very early in the year. In that context, we believe it will be a great achievement if we deliver on this guidance. We do acknowledge that the low end of the guidance would require a consistent worsening of the macroeconomic environment relative to where it sits today. We will, as usual, continue to update you as we move through the year.

We've left EBIT margin guidance unchanged at around 25%. We'll continue to press ahead and invest in current and future growth initiatives, whilst maintaining our already high margins. We can see that our investments are generating good returns, so no change here.

As usual, I'll give a few quick words on current trading. We've started Q2 well. In the first 4 weeks, our like-for-like is up high single-digit percentage levels versus the same period last year. This is another good sign as we continue to enjoy strong brand momentum.

At this point, it's worthwhile to remind you that we also had a particularly strong trading in the second half of last year. This was partially helped by various social media activations, which we don't necessarily expect to repeat every quarter. And in that regard, as you can see from our guidance, we don't assume a straight-line extrapolation of the current growth level for the rest of '24. I've mentioned previously that the underlying like-for-like run rate in the back half of last year was probably closer to healthy mid-single-digit levels. When you overlay the current macro environment, it's important to keep that in mind.

Now can we move to Slide 6, please. Here, you can see the Phoenix strategy, which we updated last year. The Phoenix wheel has served us very well since 2021, and continues to do so today. As you can see on this slide, we have a lot of growth initiatives across our 4 pillars. I will speak to some of these in detail in the coming slides. But in Q1 alone, we've started the restaging of our brand, which has had an encouraging response.

We have continued to drive growth across many of our diverse markets and pressed ahead on the rollout of our new store concept Evoke 2.0. The growth pipeline is very exciting, not only for this year, but in many years to come, and we will continue to drive this hard.

Let's get into the brand restaging in a bit more detail on the next slide, please. From our Capital Markets Day last year, some of you may remember the refreshed marketing strategy. This program to restage the Pandora brand started in early '24. The essence of this is to really change the perception of the brand into a full jewelry brand.

We've always had a wide variety of collections, but that hasn't always been the consumer perception. We're now working on changing that, and the brand restaging is and will be instrumental to this mission. We've launched a restaging with a new campaign under the big idea named Be Love. For those of you who have seen the campaign, I'm sure you will recognize that this is a new and contemporary look and feel of our Pandora brand.

We're moving away from specific product-centric marketing in order to drive desirability and affinity to the entire Pandora brand. This is, indeed, a step change, and we have and will continue to invest properly behind this and driving brand heat more generally. You can see on this slide some examples of our new campaign. We have appointed 2 new global ambassadors, sisters and artists, Chloe and Halle Bailey. And so far, it's been great to see the good price coverage we've received.

Next slide, please. Brand perception takes time to change. That's particularly true for low-frequency category like jewelry. But as you can see from the quarter and over the past year, we believe we are firmly on the right track to transform our brand. The mission is simply to bring more consumers into the Pandora brand, who are looking for high-quality, precious metal jewelry, that actually means something to them and obviously, at an accessible price.

Once we start to dominate that element of the consumer thinking, the rest comes a bit easier. We can offer them a various range of collections to suit their needs. With that in mind, you can see on the slide how we've continued to drive growth across our collections. Driving the core, whilst fueling with more, is exactly in line with our strategy, which brings me nicely on to the next slide.

Let's start with the core. Here, we leveraged our strong heritage through our icons, while sprinkling on pieces of innovation. We had a solid quarter in Q1 in our core, which grew at 3% like-for-like. Within this, Moments had a good quarter at 5% like-for-like, with the overall performance weighed down somewhat by Collabs, which always goes through various cycles.

You can see some of the best-selling products in the quarter on this slide, and we continue to see solid growth in our iconic silver bracelet. This continues to fuel growth in our carriers, which is important. Elsewhere, Pandora ME continues to contribute with yet another very strong quarter.

Next slide, please. Here, you can see the progress I was referring to on Fuel with More. Clearly, this is dominated by very strong numbers from Timeless. As per last year, this growth is relatively broad-based against all product categories. And it's important to remember that the collection is resonating with consumers, not only the specific products.

Timeless offers beautiful, precious metal, classical jewelry for all occasions. So I'm not particularly surprised that we're attracting more and more consumers into the brand through this.

We continue to experience benefits from social media activations. As in previous quarters, it's in particular supporting our Timeless collection. In addition to meaningful impact on sales, it's also a testament that our brand resonates well with our consumers.

For our Lab-Grown Diamonds, we've continued to make progress here, with 87% like-for-like growth. This is helped by the expansion of the assortment we had last year in Q3, which we're still annualizing. We still have a lot to learn and optimize here. We're convinced that we have a big role to play in the Lab-Grown Diamond market, and Pandora is the brand that can democratize this category.

One benefit from our presence in Lab-Grown Diamonds is that we've seen a positive halo effect on the brand at large. We can see this clearly in North America from data, where the consideration to purchase any piece of Pandora jewelry has increased since we expanded our Lab-Grown Diamond assortment. So there are multiple benefits in being present in this category, and it's clearly elevating our full jewelry brand promise.

Now let's discuss some of our markets. Let's start with our biggest market, the U.S., which delivered 9% like-for-like growth, another strong quarter. As we saw in the second half of last year, the U.S. continued to benefit from our brand initiatives, driving increased traffic. The brand halo effect has also been most pronounced in the U.S. while introducing Lab-Grown Diamonds. Meanwhile, you will remember that the U.S. remains a big opportunity for network expansion for us, and you can see how that drove overall organic growth at 16% in the quarter.

Next slide, please. The performance in our key European markets was also strong at 9% like-for-like. This was driven in large part by Germany, with exceptional 67% like-for-like growth. I know you will ask me what drove this, as you should. This was relatively broad based across our Collections, driven by a brand, which is simply increasing penetration in a big jewelry market. Of course, we do expect these trends to moderate, but you should keep in mind that the Pandora formula of increasing brand heat in low penetration markets works really well. Germany is just one example of this.

In the U.K. and Italy, the performance continued to remain resilient despite the weak consumer backdrop. Finally, in France, we delivered 2% like-for-like growth, with some of our positive brand initiatives were somewhat offset by weakness in the partner channel, with like-for-like in partner stores at minus 12%. This has been a sore point for a while in France, and we do have a plan to address this.

Next slide, please. In China, our performance of minus 17% like-for-like was disappointing. Shanghai keeps performing ahead of the country, which demonstrates an effect of our actions. We can record an improved performance in Shanghai, with a delta of 6 points versus the Mainland despite actually reducing the pressure. Conversion rate is at a 4-year high, and traffic is at plus 9% versus a minus 11% for the rest of the country. Moments has a 14-point delta in performance. So what I'm trying to say, slowly, slowly, we're starting to find a better model in China.

In Australia, we continue to be impacted by the weak consumer sentiment, which continues to impact the partner channels, a similar trend to what we saw last year. In Q1, we delivered 2% growth in our own physical stores, while like-for-like was minus 10 in the partner stores. Finally, on rest of Pandora, we delivered 18% like-for-like growth.

This was off a tough comparison base, so it's a good performance, and the growth was relatively broad-based, a reminder of the diverse nature of our growth here. However, we remain mindful also here that our comparatives remain tough, and we continue to expect some element of normalization of growth here for the rest of the year.

Next slide, please. As usual, I'll provide a quick update on our network plans. We saw strong contribution from network expansion of 5% in the quarter. This is mostly driven by the openings we had last year, and it's good to see the sales and earnings accretion coming through nicely. We will continue to push ahead with our store opening plans this year in 2024, with a total current target of 100 to 175 openings. We now expect the organic revenue contribution from network growth to be 4% for this year versus the previous guidance of 3 to 4.

Next slide, please. Finally, before I hand over to Anders, I'll provide a brief update on progress on the new store concept called Evoke 2.0. As a reminder, the Evoke 2.0 is a fundamental redesign of the classic Pandora store, with the vision of presenting us as a full jewelry brand and elevating brand desirability.

We now have opened a total of 88 Evoke 2.0 stores. The latest openings and refurbs we've had in Q1 have been in the U.S. and Italy, as we build out the new store concept more globally. We continue to see good traction here. We can clearly see that consumers are engaging across our collections much more intuitively, which is perfectly in line with the strategic intent.

We will continue to update you here as we move forward. But on the very small sample size of Evoke 2.0 openings, we've seen so far, we can indeed see that they're accretive to like-for-like growth at low single-digit levels in line with our expectations.

And on that note, I'll hand it over to Anders for a closer look at the financials.

[Anders Boyer-Søgaard, executive]

Thank you, Alexander, and good morning, everyone, and please turn to Slide 17.

In the first quarter, you can see how our top line growth is feeding down through a high gross margin and then further down in the P&L, driving some operating leverage, and all the way down to an 18% growth in earnings per share. And this is, indeed, a good reflection of how our business model works.

Let me just highlight 2 other KPIs on this slide, and I'll start off with the gross margin, which hit another historical record high at 79.4% in Q1. Without the one-off drag in the quarter, which we have in connection with forward integration, the gross margin would actually have been above 80%.

And I would like to repeat that these high gross margin levels are sustainable. We have operated around this level for some time now, and there's no positive one-offs that makes the gross margin so high here in Q1. It is just a continuation of our gross margin journey during the last years and a reflection of a strong brand, combined with a vertically integrated business model operating at a very large scale.

Moving on, you can also see in the table on this slide that our working capital improved a bit from last year, and that was partly driven by good inventory management. And you can see that our inventory decreased around 1 percentage point of revenue compared to last year.

Next slide, please. Now here, we will take a bit a deeper look at the revenue performance in the quarter. Alexander has actually already covered the like-for-like and networks. I'll just cover one other element on this slide here, and that's the one called Calendar Impact & Other.

Within the quarter, we saw a 2.2 percentage points positive organic growth impact from other factors. And this was partly related to a calendar impact, due to the fact that it is a leap year here in 2024, and that gives an extra trading day in February. This will obviously reverse out in Q1 of next year. So please keep that in mind for your models.

I'm also happy to report that in Q1, we did not see a drag on organic growth from the sell into our partner channels. That's quite encouraging, obviously, because we have seen such a drag for the past many quarters. Having said that, the environment still remains uncertain. So let's see how this develops for the rest of the year.

Next slide, please. On the EBIT margin, our performance played out a bit better than our expectations. And as you might remember from back in February, we said that we expected our Q1 margins to be a bit lower than last year, due to our investments in the restaging of the brand. Now our marketing expenses were actually up almost 30% in Q1. But as you can see in the bridge here, the strong top line growth drove 130 basis points of operating leverage and offset the investments.

Our EBIT margin in the quarter was temporarily impacted by 90 basis points of headwind from forward integration. And this is -- compared to last year, that's a net 80 basis points of headwind, and that's the net of the 2 building blocks in this bridge showing the forward integration impact last year and this year. But without this one-off impact, the underlying EBIT margin in Q1 was close to 23%.

So now let's move on to the guidance update on Slide 21. As you have seen today, we started the year well with a strong Q1, and this has prompted us to increase our organic growth guidance to 8% to 10% from 6% to 9% previously. Alexander has already given some comments about the guidance, but there's a few things we want to stress or repeat here.

We clearly had a strong first quarter. And so far, current trading has remained solid in the second quarter. The current trading, of course, covers a quite short period of time, and this can indeed be impacted by many things. But we are happy that our underlying demand looks similar to what we've seen over the past 3 quarters.

But we can't just extrapolate this going forward to the rest of 2024. First of all, as Alexander reminded you already, we had a particularly strong trading in the second half of last year, 2023. That was partly helped by a number of social media activations, which we do not necessarily expect to be able to repeat every quarter.

Secondly, while growth and especially rest of Pandora and not least, Germany has started off strong in '24, we do expect some normalization of growth here. And then finally, just repeating again, we are still conscious of the macroeconomic situation, and the low end of our guidance accounts for a weakening of the macroeconomic climate relative to today.

So in summary, we have started the year well. Our growth pipeline remains strong, but it is early on in the year. And obviously, we will continue to update you on the guidance as we move through 2024.

One final note here is that we have raised our network guidance slightly to around 4% versus 3% to 4% previously, and that simply reflects some fine tuning on the timing of the openings this year and the ramp-up from last year's openings in Q4.

Next slide, please. We're keeping our EBIT margin guidance unchanged at around 25%. We've laid out the building blocks for the margin guidance on this slide, and we are happy to dive into the building blocks if you have more detailed questions. The operating leverage from the higher revenue guidance will be reinvested in growth initiatives to keep fueling the top line growth in 2024 and going forward.

And this includes, for example, continued investments in the brand, accelerated investments in building out our presence in Asia, including in the big jewelry markets in Japan and South Korea, as well as a bit of accelerated forward integration.

I would also like to provide a more as a household comment to the phasing of the EBIT margin based on these additional investments that we are making. So while you have seen that the Q1 margins were up year-over-year, we expect the second quarter and third quarter margins to be slightly lower versus last year, and then before being slightly up again in Q4.

Next slide, please. Pandora has always been nothing but a wonderful cash-generating machine. And we have put in 2 charts here illustrating that -- the upper chart, we haven't shown before, but it shows that our payout ratio during the last 11 years, on average, we have returned around 100% of our net income to shareholders since 2012.

And as you can see in the lower chart, this is just repeating what we showed last quarter, but we think it's worthwhile repeating, then a decent part of this payout has taken place as share buybacks. And since 2012, we have bought back and canceled nearly 35% of the share capital. And in '24, we do continue this journey and pay out DKK 5.5 billion to the shareholders or just about 6% of the market cap.

Next slide, please. In 6 weeks' time, on June 11 and 12, we are hosting an analyst and investor trip at our state-of-the-art crafting and supply facilities in Thailand. And many of you have signed up already, but we do hope that even more can join us to see our vertically integrated business model and how we are crafting jewelry at such a large scale.

And please get in touch with Bilal or someone else from the IR team if you have any questions or want to join. And with that, I'll hand it back to Alexander.

[Alexander Lacik, executive]

Thank you, Anders. So to try to conclude, if I had to summarize everything that is leading to our success right now, it would be traffic. We're simply bringing more consumers into the brand today, which is a good endorsement of the strategy.

Overall, you can see this through our overall growth and our broad-based like-for-like growth across the collections. We clearly continue to invest heavily behind our growth initiatives, whilst maintaining very strong profitability across the board. And given the start to the year and our ongoing confidence in the strategy, we've raised our organic growth guidance to now be 8% to 10% for this year, as Anders just went through.

And with that, I think we're ready to open the Q&A.

[Operator]

[Operator Instructions] The first question is from the line of Lars Topholm from Carnegie.

[Lars Topholm, analyst]

First of all, congrats with an exceptional solid quarter. Well done. I have 2 questions. One is on the gross margin, where you are very transparent and your sensitivity to commodity prices. But that's only one of the moving parts, and we can see in this quarter, there's a drag from forward integration. There's a 210 bps tailwind from efficiency gains, pricing and network.

Looking at the next couple of years and knowing what you plan on board integration, et cetera, what kind of potential silver cost inflation will you be able to mitigate from these other parameters? I assume the 210 bps from Q1 won't always be repeated, but I also assume these are integrated parts of the way you run your business. So presumably, there will be some tailwind from that going forward. That's the first question.

The second question goes to the new ESSENCE COLLECTION, which you told the investors about on the CMD last year. You've been trialing that in Holland, and I understand you were going for a global launch in June, so with effect in H2 this year. Can you give some details on how this collection has performed in Holland, such as share revenue? Whether this revenue is cannibalization or incremental? And maybe also some comments on what kind of marketing investment has been behind it in Holland?

[Anders Boyer-Søgaard, executive]

Lars, thank you for that question. I'm also almost hesitant to answer in a very concrete way. But starting -- just a couple of reflections. One is that with the current spot price, at least what it looked like a couple of hours, hours back, then the current silver price is around 100 basis points of headwind compared to where we are operating in '24, but also roughly a headwind of around 100 basis points compared to the CMD target. And obviously, as we all know, that can change.

And then on top of that, the sort of the annual structural headwind we will have on the gross margins of everything else equal is obviously salary increases to our colleagues in Thailand, not the least that needs to be need to be mitigated as well. So setting off those 2 -- both of those 2, assuming that the silver prices remain where there, is a bit of a steep curve.

But you're absolutely right. We are increasing growing the -- our own network a bit faster than the partner network. We are continuing forward integration. As you rightfully said, that's a pretty big plus in Q1, and that journey is going to continue in the years to come.

And then adding the price increases. We've said that we were doing 1 to 2 points of price increases per year. That's 20 to 40 basis points on the gross margin. So net-net, everything else equal, I think what we will be pointing towards is that the underlying gross margin that you're seeing us trading out right now, just around the 80% plus/minus, is not too bad way to think about the gross margin even at the current silver price level.

[Lars Topholm, analyst]

So just to be 100% clear, Anders, when you presented your long-term margin target of 26% to 27%, silver was lower than where it is today. Given that increase in the silver price, the 26% to 27% [ jeopardized ] in any way?

[Anders Boyer-Søgaard, executive]

Of course, as a starting point, it gives 100 basis points more sort of work to get to it. That's okay. But we made -- the CMD targets were based on a silver price of USD 23.5. So that is, give and take, 100 basis points of headwind on an isolated basis. But there's obviously many other factors at play in the margin. Top line growth, the level of network expansion, foreign exchange for that matter as well.

And then potentially other specific actions we could take, given that the silver price is up, and that might be related to product design, driving a bit different product mix, maybe even ASP increases or cost measures down through the P&L. So it's still -- the way I would -- I think we would answer is that, it's still early days. As on an isolated basis, it gives a 100 basis points of headwind. But we've also shown that we can manage sort of volatility before if you look back in the past. So that's kind of the vague answer, I can give you Lars. I hope that's okay.

[Lars Topholm, analyst]

Yes, it's fine, Anders. And then on new ESSENCE?

[Alexander Lacik, executive]

So on ESSENCE, as always, when we do the test market launches, we are trying to figure out the right model. So it's rarely the matter of you plot a test and then everything works the way it does. So you keep kind of working around. And then when we kind of go to the next phase, when we're looking at the global scale up, then, of course, we are looking at the best componentries of the learnings that we got from Holland. So just kind so you understand a little bit the methodology.

Now in terms of -- it's a bit hard to read in Holland because Holland was kind of on a double-digit growth journey before we launched. It sustained at that and even a little bit more. So arguably, there was good incrementality coming through from the launch. Exactly how much cannibalization? I mean it is very difficult to assess.

But minimally speaking, there is -- on a launch that kind of sits like ESSENCE, diamond would be a different topic. But that type of launch, I would expect that you get between 50% and 70% incrementality coming through. So that's probably how we're thinking about it.

[Lars Topholm, analyst]

But 15% to 7% incrementality on what revenue share?

[Alexander Lacik, executive]

50% to 70%.

[Lars Topholm, analyst]

50% to 70%.

[Alexander Lacik, executive]

Yes, typically on a thing like that because it has enough separation from the usage occasion. There's enough separation from a price value standpoint. So you should expect that -- because if you have 100%, then why do it in the first place? Because then you're just shifting money from left to right. So that's of no interest.

Diamond would be, in my world, close to 100% incrementality coming through. So -- and even if it's not, if I move somebody from buying a charm for $50, and they move to $700, I'll take that any day of the week. But ESSENCE -- yes, so we expect a fair amount of incrementality coming through when we entered the other markets. Yes. And it comes within the envelope of the budget that we have for the year. So it's kind of been baked in.

One idea behind the Queen effort was to essentially provide a brand communication platform, which is what I mentioned in my notes, rather than layering each collections on top of each other. Because once you start doing that, then all of a sudden, you end up with a marketing budget that's going to exceed your revenues, which is, of course, not so attractive.

So we're trying to swap the model into having a brand layer at the top, and then we use middle and lower funnel media channels to drive specific product news. So it's a shift in how we try to -- and that wouldn't allow us to keep within the parameters of the marketing investment that we've been speaking about in the past. So it's a little bit of a different model.

[Lars Topholm, analyst]

I understand. The share of revenue in Holland, would you comment on that?

[Alexander Lacik, executive]

Yes. I mean it's a couple of points share of business. So similar to Pandora ME, if you think, in that respect.

[Operator]

The next question is from Antoine Belge from BNP Paribas.

[Antoine Belge, analyst]

It's Antoine, BNP Paribas Exane. Two questions. First of all, is it possible for you to give a bit more color on the key markets within the rest of Pandora, like Mexico, Spain, et cetera, in the quarter? But also how you expect them maybe to trend when they get maybe to tougher comps? And my second question relates to the increase in the contribution from space for this year. Is it possible to have a breakdown of the regions of the new guidance?

[Alexander Lacik, executive]

Okay. Maybe I can shed a little light on some of the other markets. So we had Spain, plus 12. I have Poland, plus 15. You had Canada, which we don't talk a lot about, sitting at plus 9. Turkey sits at a very high number. But of course, part of that is volume, part is price inflation. And Mexico, to wrap it up, was set at high single digit. So yes, so that's kind of where it sits. As I said, we expect some of these to moderate a touch.

I think the big unknown in these numbers is always Turkey because it's -- the other one is a bit more in our control. Turkey, of course, with this -- the lira jumping up and down and interest rates, that's a big uncertainty. So we always forecast a little bit on the cautious side on that because you can't bank it, simply put. And then maybe on space, Anders, maybe.

[Anders Boyer-Søgaard, executive]

Yes. On the space piece, the -- as you can see, our guidance on the number of stores is unchanged. So going from 3% to 4% to 4% organic growth, contribution is mainly a reflection of the -- yes, timing within the year when we're opening up the store. So the store is still the same.

If you look at the concept stores, the majority -- the biggest contributor is North America, but we actually almost across the board, across the market, across the clusters that we have organized in opening up the stores. But in absolute terms, the biggest contributor is North America, U.S. and Canada, Southern Europe, including Greece, as an example. And Italy is -- we're opening up a number of stores as well. And then not least, Latin America now also, a couple of markets in Asia.

For shop-in-shops, it's mainly Latin America and Asia store, but not least, Latin America. So net-net, the big contributors is North America and Latin America. That's the 2 biggest parts of the world, where we are opening up stores.

But now as you can -- reading our company announcement and in the voiceover that we just gave before, we are speaking more and more about other markets in Asia. And we are starting putting some proper money behind building a stronger footprint in that part of the world as well.

Mentioned specifically Japan and South Korea, but there's a number of other markets, if you go into the fine print, where you can see we've actually, during the last couple of quarters, have opened up stores, Thailand being one as well.

[Antoine Belge, analyst]

Okay. Just to clarify. So is it fair to say that out of the full year guidance, half of the contribution coming from the U.S.?

[Anders Boyer-Søgaard, executive]

It's a little bit less than -- it will be a little bit less than that. I think on the concept stores, which obviously, the -- from a revenue point of view, the biggest piece you can think North America, that's including Canada, but let's call it 40-ish stores out of the guidance. So it's almost half of the midpoint of the guidance.

[Operator]

The next question is from Thomas Chauvet from Citi.

[Thomas Chauvet, analyst]

The first one on the non-charms categories, for more very strong like-for-like, particularly Timeless at plus 43, accelerating that for, that's the 3 quarters in a row and I think above 20% of sales. Could you explain who that core customer is? Are they increasingly new? Are they former Moments customers that are increasing their basket size or that perhaps are moving away from charms, being less interested by charms? And then who are you, you think gaining market share from in your key markets with the Timeless?

And secondly, on the 20, 40 bps margin bridge guidance, you said there will not be much operating leverage because of reinvestment. You mentioned, Anders, that the push in your markets, Japan and Korea. Could you quantify those investments in Japan, Korea in monetary terms?

And I was just wondering, why not India first? If I recall your presentation back in October, at the CMD, you showed how, obviously, India's much bigger share of the global jewelry market than Japan and Korea, I guess, might be perhaps a bit of a product positioning in a market maybe driven by gold jewelries. Is that the problem? And just how these investments in Japan and Korea, on top of what you have planned for China? Or are you scaling back a little bit on China this year?

[Alexander Lacik, executive]

So on Timeless, first of all, I mean, in absolute numbers, when we put a 5% growth on Moments, that's going to be the biggest thrust because, of course, it comes on a larger base. The only thing which we have seen possibly on Timeless is that the rings in Timeless, which has also been kind of heavily featured on TikTok and all types of social platforms, seem to have attracted a slightly younger audience. But that's as much as I can say. Typically, we see that the brand kind of runs cross-generational. There's no major deviations that we have seen so far. Yes, I think that's Timeless really.

[Anders Boyer-Søgaard, executive]

And thanks for the question on the margin, Thomas. India -- we are also having a lot of activity around India. The difference in -- so the difference in timing comes from -- we already have a presence in Japan with our own network and in South Korea through a partner.

It's easy to accelerate from that starting point, while India is still greenfield. We don't have any stores in India, but there's definitely also activity -- a lot of activity in our business around how do we get started in India? But too early to talk about just yet.

On the investments, the give and take and round numbers, you can think about the incremental investments that we have decided to do this year as in the -- to the tune of DKK 100 million, 30 basis points margin impact, and a bit more than half of that is related to Asia, ex China. So -- and mainly Japan and South Korea. And the rest is related to other more global marketing activities and forward integration -- accelerated forward integration.

So we have not touched the China investments. We want to make sure that we have enough fuel in the tank to get the brand into a better place, even though it's not something that's done in a day, as you can obviously see in the numbers. We are not touching the investments in China.

[Operator]

The next question is from Louise Singlehurst from Goldman Sachs.

[Louise Singlehurst, analyst]

You must be absolutely delighted with such a strong start to the year. A couple of quick ones. I wondered if you could help us, just think about the U.S. consumer, there's obviously quite a range of company reporting and anecdotes on the U.S. consumer. But what you're seeing in terms of obviously traffic very strong. But sort of any changes or performances that you'd like to call out during the quarter that you've seen traffic conversion demand by price point?

And then my second question was just relating to the 8% to 10% guidance. I think you make it very clear, in terms of the low end of the guidance, would reflect quite a worsening of the macro environment. So obviously, that it's quite a narrow range. So presumably, the 10% would be status quo as we see today. I wonder if you could give us a little bit more color around that.

[Alexander Lacik, executive]

So on the U.S., indeed, there are a lot of anecdotes flying around and less -- the issue with this category in general is not just U.S., is that it's -- from a data standpoint, there are many different data points, and they all point in different directions. So you have to be very careful when you interpret them.

The way -- and we obviously collect as much as we can. And then what we try to understand is essentially total category trends. You're now asking a question to dissect inside the category and see how different consumer cohorts move. So far, we don't have any reliable statistics in that. So it's more kind of looking at different data points. There are a couple of companies that report, of course, Signet Brilliant Earth. There's some commentary in general on LV, but that's -- they combine hard luxury with watches and jewelry in one, presumably a big part of that is Tiffany.

So why don't you start piece these things together? The view I would have is the U.S. market has not been in a positive space for some time. There are some indications I can't remember who reported that, that suggested that maybe the higher-end luxury brands are having a slightly tougher time than maybe brands that are positioned like us. So that's as much as I can say.

What's interesting, if you look, peel the onion a little bit on Pandora, it's clearly, we continue to drive our growth based on traffic increase. but there's even more to that. So if you look at the, let's say, the funnel, we talk about aided awareness, which, of course, is so high, it becomes almost pointless to look at it once you start getting in the in the 80%, 90% range.

But unaided awareness tells you something, and that's grown for us in the quarter in double digit. Consideration, which is the next one is, of course, I might be aware of you, but I'm not interested, okay? That's a bummer. But actually, then consideration is the important metric they can shift people's view that they consider you. That's also up double digit in our case and ahead of competition the way we register it.

Penetration is up significantly, not just in the quarter, but actually over the last 3, 4 years, penetration has been on a positive trajectory in the U.S. Our share of search is also up in double digit. That kind of points to a higher engagement for our brands. So if you look at all this in aggregate, it's clear that we are gaining a lot of market share. Exactly from who? I don't know.

But one has to believe that other brands that sit in the same kind of value proposition than us. We're probably gaining a little bit of share from these guys. There's this theory that aspirational customers are somehow trading into us. Please note that I'm not saying down.

Yes, that's probably -- a few of them are probably picking up Pandora and putting into their repertoire. I think they kind of -- at the highest, highest end, these people, I doubt that they're coming into Pandora. You're very welcome, by the way, but I don't think that's where it's coming from. So I think it's from lateral share gains and some of the people that have aspirations, but today don't have the discretionary power to do those purchases.

[Anders Boyer-Søgaard, executive]

And to your other question, reason, a very short answer would be, yes, your logic is right. That if we continue pretty much at the pace that we've seen in Q1, then we should be ending up somewhere around the higher end of the like-for-like guidance -- organic growth guidance.

But just to give a little bit more color, one way you could think about it, looking at Q1, the like-for-like was 11% year-over-year. I'm not always a very big fan of looking at multiyear like-for-likes. But if you look at like-for-like in Q1 on a 2-year stack, it's 11% as well. And it might make sense to look at -- as one of the ingredients in how to think about the year, it might be -- makes sense to look on a 2-year like-for-like, given that there's such a big difference in the comp when we get to the second half of the year.

But if you look at that -- use that 2-year logic getting into Q2, you could probably get to Q2, could be around within this guidance, around the lines of high single-digit year-over-year like-for-like, then that still as up to 11% on a 2-year stack. And then getting into the second half of 2024, we're meeting 9% like-for-like comp on a year-over-year basis.

And you can probably do the math that our second half, Q3 and Q4 guidance, would be between 0 and 3% like-for-like in Q3 and Q4 on a year-over-year basis. And then if you had to convert that high end of that -- of the guidance, then to a 2-year stack, then you will get to the high end of the guidance means around 12% like-for-like in Q3 and the Q4 on a 2-year stack.

So long answer, but a slight acceleration would be implied in Q3 and Q4, if you take the -- that analysis or use that analysis to dissect our guidance.

[Operator]

Next up, we have Kristian Godiksen from SEB.

[Kristian Godiksen, analyst]

And also for me, congrats with another set of very strong results once again. So 2 questions initially. So maybe if you could comment on the pipeline of the forward integration. You mentioned, Alexander, in the presentation that you also have a plan in France. I was wondering if you could elaborate a bit more on that based on the commenting on the weak partner performance.

And you have also spoken about the difference in the performance in the U.S. between your own stores and franchise stores. So that will be the first question. And then the second question is on the EBIT margin bridge. I was just wondering on the size of the column of the operating leverage and hence also the size of the investment, is that representative? I would have thought it would have been larger as you also show in the Q1 margin bridge. So obviously netting out that I understand, but more on the size of each of the directions.

[Alexander Lacik, executive]

Yes. I mean when it comes to the France and the answer is the same where everywhere in the world. We are not going to people breaking contracts. It's -- we're waiting for the contracts to run out or if the franchisee approaches us and wanted to have a conversation on a potential takeover. So that's essentially what's cooking in France.

And then in the U.S., if you look at -- if you break down a little bit the channel performance in our O&O, we were growing by 7. eSTORE was up 22. And actually, the franchise community of wholesale was up 1 point. So they were actually on the sunny side of things in the quarter.

And it's the same story there. It's like if and when a contract runs out, then we have the conversation. If not, then we're trying to, yes, have a business conversation when we think they're underperforming and what -- and typically what drives the underperformance, and we've talked about this in the past is, they don't have enough inventory, they don't have the right inventory, and they are not applying staff hours as agile as we would like them to -- or invest, in volume terms, enough staff hours to get hold of the conversion opportunities. So there's nothing really new to the story there.

[Kristian Godiksen, analyst]

And then maybe a follow up is, briefly, just on the France, you mentioned that you had a set of plan. What was that referring to then?

[Alexander Lacik, executive]

So it's the same old story as we discussed with them. We try to find incentives for them. The ones that are not running out on the contracts, we show them how much money they're leaving on the table. And yes, there is a forward integration aspect of this. Those are concretely the plans.

[Anders Boyer-Søgaard, executive]

And then, Kristian, to your other question, I think you have a fair point in the EBIT margin bridge that the gray and pink column in operating leverage, if it -- I size it compared to the other ones, you will probably say that looks like 15, 20 basis points.

And I think in reality, the gray box and the pink box could be sort of equally both bigger, but still adding to around 0%. I think that's probably -- also with hindsight and prompted by your question, why we could have drawn it like that. And so a little bit bigger upside and equivalent downside depending on exactly how we time investments.

One of the -- I'm just going back to the question before on forward integration, that is one of the -- so the variables where we might say, well, we are clearly on a journey, becoming more and more owned and operated. And if there's space there in the P&L, we might -- an option to do it in some markets, we may accelerate forward integration even more.

[Kristian Godiksen, analyst]

Okay. Makes sense. Just -- I guess it's -- I would also assume it was more than just a little bit bigger because, I guess, in Q1, you showed that the operating leverage, and that was even net of investments, that was 1.3 percentage points. So I guess, are we speaking about in percentage point terms? I guess, are we in basis points here?

[Anders Boyer-Søgaard, executive]

And the 130 basis points in Q1 also comes on the back of a significant growth outperformance. So if that -- speculating if that happened again, then, of course, the size of the gray and the pink boxes could be even bigger.

But within the range of 2 points of organic growth, 8 to 10, then it looks like this, we could have drawn it maybe a little bit bigger, the gray and the pink box. Within that top line guidance range, I think that kind of dictates the size of the boxes in operating leverage.

[Operator]

Next up, we have Grace Smalley from Morgan Stanley.

[Grace Smalley, analyst]

I have 2 questions, please. My first one, will just be on the like-for-like growth. As you said in Q1, regionally was very much driven by Germany and the U.S. and the rest of Pandora markets. I guess, looking ahead, when looking at all the work that you're doing in terms of brand elevation and marketing investment, when would you expect that to start to pay off in terms of a positive inflection in like-for-like perhaps in some of your more mature markets, such as the U.K., Italy and Australia?

And then my second question, Anders, I think if I heard you correctly, you said that on the cadence of EBIT margins, that you'd expect them to be down in Q2 and Q3 and then up in Q4. And if that's the case, and apologies if I missed this, could you help quantify the magnitude of margin pressure you would expect in Q2 and Q3, please?

[Alexander Lacik, executive]

So on your first question -- I mean the reality is that those markets are in negative territory, and we are kind of less negative. So it's -- the brand revamp is already paying dividends. It's just that the market is subdued.

So it may become more visible when the market goes into a positive territory. And of course, when we have a more mature position, the incremental impact is always going to be a little bit less than when you have a big penetration opportunity, like we see in Germany and the U.S., as an example. So I think it's already at play. Yes.

[Anders Boyer-Søgaard, executive]

Grace, in general, I think we'll be a little bit hesitant to be too specific on the quarter. But I think it's a fair question. It's -- it was meant as more of a household comment. So it's not any big movements, but think about it as Q2 and Q3 could be to the tune of up to 100 basis points down year-over-year. That's kind of how to think about it, up to 100 basis points.

[Operator]

Next up, we have Anne-Laure Bismuth from HSBC.

[Anne-Laure Jamain, analyst]

My first question is about the current trading. Thank you for providing earnings, an element in the press release about the fact that Q2 so far has remained healthy with high single-digit like-for-like but would it be possible to have granularity by region and especially about the U.S. already performing there so far in Q2?

And the second question is about of the topic of recruitment of new consumers. So is it possible to quantify the impact of the Be Love campaign and the recruitment of new consumers? So many new consumer entered the Pandora store for the first time. And maybe last one about the restaging of the brand. What are the next key steps that we could see in the upcoming months about this brand restaging?

[Bilal Aziz, executive]

Anne-Laure, thanks for the question. I'll take the first one, and then, Anders, will guide on the new consumer acquisition. Within the current trading commentary, we don't usually typically break out the regional split, but broadly just use the same splits that we have seen by Q4 and Q1.

There will be broadly similar. There's no major deviations between the regions as we start the quarter. Be mindful, April is very small. Mother's Day is ahead of us as well as a cautionary comment. And of course, our comparators do get tougher towards the end of the quarter, as Anders already mentioned. So no real major deviations in the current trading.

[Alexander Lacik, executive]

Yes. On the quantification, I mean, the campaign has been up for about 60 days. So the simple answer is, no, I cannot trace the specific impact of that advertising, but we see a net inflow, which is significant. So the way I'd be thinking about it is -- and don't forget that the growth has been going on for quite some while, if I'm talking from a brand penetration standpoint.

So what Be Love has done is it seems to accelerate that traffic growth, which is kind of pushing the numbers. And then the other thing, your question on what else should you expect? I mean this -- the idea with this campaign is that we're not going to keep changing it. That's kind of the idea of a campaign per definition, which is what we did in the past, we kind of kept changing the messaging a little bit too much.

So this whole umbrella of Be Love is going to be there. Of course, we'll inject other aspects within that, maybe with different talents at times, but essentially, this campaign is a multi-season campaign. So you should not expect major changes. And -- so maybe when we have the trade call in August, we can put a bit more color on that. We're running some research, but I'm only getting that in 2 months.

So I don't have -- so the best way for me to gauge whether it's doing anything is to look at my traffic numbers. And as I said, traffic is the most important thing underpinning our growth right now. So you have to make the assumption that it's a positive influence.

[Operator]

And the next question is from Martin Brenoe from Nordea.

[Martin Brenoe, analyst]

I think I need to be fast on the fingers next time. You have results coming out. Just 2 questions, if I may, and I'm going to take them one by one, please. So the first question is regarding the network expansion. For this quarter, you delivered 5% network expansion, which I guess is mainly to be credited by the network expansion that you did and probably in the latter half of 2023.

And you opened around 25 stores year-on-year in total in Q1. So I'm just wondering a little bit with the Q1 last year, you actually closed stores. So hopefully, you can follow my logic when I say that incrementally from here, the network expansion, I guess, as you don't expect to have the same back-end loaded store expansion, if I understand you correctly, should actually only be incremental from here? Is there any flaws to that logic? That's the first question.

[Anders Boyer-Søgaard, executive]

It's actually a good -- Martin, it's Anders. It's actually a good catch, so to speak. But if you go back and look at the stores that were closed last year, then just from memory here and maybe my IR colleagues can help me out, if I'm saying something that's not right.

But the majority of the closings were in China last year, where, unfortunately, revenue is quite low compared to the -- very low compared to the rest of the world. And then on the -- there was a number of shop-in-shop closings as well, but they were partner closings and not our owned and operated stores. It doesn't count that much in -- so in terms of -- to the year-over-year growth that we're seeing here in Q1.

So that skews the calculation a bit, but I know that somewhere in our [ fights ], we have done a bit of math on that. And if you need more, we can -- either I or the IR team can help you. So make the -- meet on the math, Happy to do that.

[Martin Brenoe, analyst]

Okay. And the second question, just regarding the guidance. So I actually expected Lars to ask this question, but I'll do it instead because I think that you are referring to some assumptions to the low end of the guidance where you're saying that this is expecting material worsening of the macroeconomics.

But I guess that, if I do the math, correctly and correct me if I'm wrong here, but the implicit organic growth for the rest of the year and the high end is 8% organic growth. And if I take sort of the network expansion, you say 5%, 4%, but to me, it seems like that could also be a bit conservative, then we are looking for sort of low single digit, mid -- low, at best, at mid-single-digit like-for-like growth for the rest of the year.

I guess with ESSENCE being rolled out, Evoke being rolled out, which is incremental as we heard Alexander say, and also the store expansions and in-mall marketing and incremental markets, so white space markets, greenfield markets, is it fair to say that that's also being sort of conservative as you are writing into new eras where you don't have the same visibility to sort of the effect of the marketing that you're bringing to it? That's my question.

[Anders Boyer-Søgaard, executive]

It's a fair question, Martin. And just starting out, your math is right. So the implicit organic growth for the rest of the year is 5 to 8 for -- and 2 to 5 on like-for-like. So that math is right. And again, I think from June onwards, we're meeting a very different comp base.

This is very, very broad terms, but from Jan to May, the comp base last year was almost 0% like-for-like. And then from June onwards through the rest of the year, the comp base is 9% like-for-like. And that's the majority of the answer. And that's why on one of the questions just earlier on at the call, I spoke a bit about the 2-year like-for-like.

Because implicitly, when you look at the 2-year like-for-like, then the -- at the top end of the guidance, we actually have an unchanged to a slight acceleration of the like-for-like for the rest of the year, which is probably have compared to where we are now, which painted a little bit of a different picture.

But let's see, it's early on in the year. We definitely have incremental growth drivers in the pipeline as we should at any point in time, but what we are looking into right now. We think this is a good way to guide you on where we expect to land at the end of the year.

[Martin Brenoe, analyst]

But I guess that if I take your multiyear view and double down on it and, say, versus 2019, sort of the last clean base before COVID, then, I guess, the CAGR from Q1 to Q4 is relatively insignificant a couple of percentage points to difference over a longer period of time? So in that sense, there might be a 2-year comparison base. But on the longer term, I guess that it's actually more or less on a normal trajectory on all quarters here.

[Anders Boyer-Søgaard, executive]

I'm slightly hesitant on a 2-year like-for-like, but quite hesitant on a 5-year like-for-like to be honest. It starts getting into that very few in the company can remember, okay, I was there, and Alexander was there, at least from Q2 of '19 onwards.

But -- and it gets -- what makes you a little bit blurred. When you look at it also on a such a long time horizon, 60 months back is also that we went through the program now at that point in time that impacted the individual quarters. But hey, I know that, that some around the world are trying to make some sense out of the numbers by looking at on a 5-year stack. But I think, internally, we are more taking a 2-year approach to that as well. We think that that's more -- that's easy to understand.

[Operator]

Last up, we have a follow-up from Kristian Godiksen from SEB.

[Kristian Godiksen, analyst]

So I was just -- based on the ESSENCE, I think you mentioned that you have included a positive impact that is baked into the guidance now. I believe you previously have said that you have not assumed any meaningful impact. Can you please clarify that? That would be the first one.

And then secondly, that's just a follow-up question also on the higher silver prices and the mitigating effect. I was just wondering if you could comment on what the yearly contribution has been on the gross margin from the increased efficiency you've been able to do in the last many years?

[Alexander Lacik, executive]

Sorry. Just -- can you repeat your first question? I wasn't sure I got that entirely correct.

[Kristian Godiksen, analyst]

Yes. Sorry, it was just on -- I think you mentioned, Alexander, based on the commenting on the strong performance of ESSENCE in the Netherlands, then that you should also expect a positive impact in the second half or when it's rolled out globally. I was just -- I just seem to remember that you said you had previously not assumed any meaningful impact in your guidance. So I was just wondering what -- is there any change there? And what is assumed in the guidance?

[Alexander Lacik, executive]

Sorry, I cannot recall that I've ever said anything like that. Sorry. So there must be a misunderstanding then or maybe we were referencing something else.

[Anders Boyer-Søgaard, executive]

It's part of the plan. Yes. I think what we probably might have said, just fishing a little bit here was that we have not confirmed the timing of when we would actually launch.

[Alexander Lacik, executive]

Launch.

[Anders Boyer-Søgaard, executive]

Launch ESSENCE. And therefore we have a little bit vague on it because, of course, we know, but as you know, we normally don't want to put a date on it for competitive reasons.

And then on the silver price, if I can -- if I may, then I would like to sort of point towards June 11 and 12 in Thailand, where we will talk more about that. And I think we have the pleasure of you joining us there, Kristian. So if you can wait until June 11 and 12.

[Bilal Aziz, executive]

Thank you very much, everyone, for dialing in today. I'll pass it to Alexander for final, final comments, and thank you very much from my side.

[Alexander Lacik, executive]

I wish you were in Copenhagen. It's a sunny day. I say this is the best recruiting element where we try to get people to come and work here. And the results are also sunny, so we're in a good place. There's still plenty to do in the year. We have good plans, but the world is a little bit uncertain as we've tried to reflect in our guidance. Yes. And I thank you for your attention, and see you soon. Thank you.

[Anders Boyer-Søgaard, executive]

Thank you.