Pandora A/S ($PNDORA)

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. [Operator Instructions] I would also like to draw your attention that at 12:00 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 2 and turn to Slide 3. 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 1 performance before turning to an update on the strategic initiatives we outlined back in February on how we were going to reenergize growth. So let's start. In quarter 1, the quarter played out broadly as expected. We delivered 0% like-for-like growth and 2% organic growth. We delivered this in a challenging consumer environment, and yet we are clear that there is more we can do to drive a stronger like-for-like growth, and I will come back to that. On profitability, EBIT margin remained 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 1% to 2% with like-for-like growth of minus 3% to 0% and network expansion of around 2%. We have started the year towards 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 a 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 continue 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 like-for-like growth in this quarter. So let's move, please, 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 like-for-like growth while protecting profitability. So let me just show how we are starting to deliver against 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 shows how we are evolving our growth engine. The three area 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 reenergize 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 a step-change creativity and the perception of our craftsmanship. On brand, we have already start shifting towards activation-led engagement with earned media as a core KPI. So investment is already to start 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 a 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 introductions planned. 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 relatively narrow aesthetic space in the market, 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 what 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 a 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 1. Now the opportunity is to scale this more systematically across the portfolio as part of our evolved 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 is a key part of that. Pandora Wonders is a multiyear platform to elevate desirability and drive demand through a step change in creative expression. So each year, we will partner with the leading creative voice to reinterpret the materials we work with and how we craft them through limited edition capsules. This is intending to drive excitement, traffic and reinforce our growth model of distinctive newness and earned media. We will start with act one, 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 by bringing a new material to Pandora that we are showcasing. The 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. 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 high calorigenic. So, for consumers, as I mentioned before, this brings platinum, which is a precious metal into a more accessible format, which improve everyday use. Now this launch was prepared over the last year, 2025, with extensive consumer testing and validation that confirm 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 1/3 of our sales already come from outside silver. So plating today is pretty much 1/4 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 a good time now to turn to the quarter 1 performance. For quarter 1, we delivered flat like-for-like. You can see the growth speed between the core and the Fuel with More here. In the core, we deliver minus 1% like-for-like growth. This was supported by good growth in our distinctive designs, Talisman and the limited-edition Bridgerton. 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. Bridgerton was only one example. But you see that in quarter 1, we partnered with KATSEYE 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 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 is 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 Bridgerton activation run across more than eight markets, drove 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 store and online. Very important as well, we over-indexed with Gen Z, and we also saw higher cross shopping, so a clear halo effect that actually Timeless benefit from. So this approach, of course, will not be a one-off. We are now scaling the model across markets and collection, 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 curative 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 1, which was, as you can see, somehow mixed. If we start with the EMEA region, our largest region, we deliver a 2% like-for-like growth, broadly stable sequentially. In Spain, Poland and Portugal continue to perform well, but this was more than offset by weaker performance in Italy and the U.K. And you can see, of course, that the performance was minus 2% like-for-like. In Italy, we are now implementing 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 like-for-like growth accelerated to 6%. There, the price repositioning was introduced early this year and is 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, influencer engagement in line with our evolve growth model. And finally, in Asia, we deliver 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, and good morning everyone. And please turn to Slide 19. Berta has already commented on the top line KPIs. I'll just follow -- focus on a couple of the other metrics. And the key messages from us today is that we continue 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 gross margin performance was helped 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 have 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 twoways. 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 DKK 2 billion year-over-year due to the commodity prices. On top here, 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, into '26 will increase by up to DKK 3 billion versus last year. Now it's important to note 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. 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. Berta has already covered the key element on like-for-like. 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 quarter 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 cost phasing benefit of around 200 basis points in total in the quarter that's spread across a couple of P&L lines. And it's partly related to lower [retail] 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 '26. 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 broader 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 like-for-like growth. We've seen some positive signs in Latin America and in Asia already, and we are 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. There'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 cost amounting to between 50 and 100 basis point 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, et cetera. 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 phasing 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 year 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 '27, 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 end game 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 labor cost as it requires more cracking 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 on 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 cost 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 the 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 USD 1 move on silver prices, down from 30 basis point just a few years back. And that sensitivity drops even further to around 6 basis points after the transition. And on that note, I will hand back over to Berta.

Thanks [Thanos]. So, to conclude this call, let me just highlight a few key points. We have started the year in line with expectations. That is not to say that like-for-like growth is where we want it to be, but we are very clear on the actions require and we are moving decisively. This includes a step change in how we approach design, marketing and go-to-market execution in selected markets. We are seeing encouraging signs in some areas, and we are scaling these actions more broadly. Importantly, our brand remains strong, which give us really confidence in our ability to deliver on these actions and build sustainable growth. At the same time, we continue to demonstrate a strong cost discipline, offsetting a significant part of the external headwinds. As a result, profitability remains solid. We are also taking actions to protect profitability over the long term, including the rollout of our platinum plated offering. Looking ahead, we continue to target -- midterm EBIT margins above 21% as Andres was explaining, while generating a strong free cash flow. So with that, I just want to thank you for your attention, and we can open now to the Q&A.

[Operator Instructions] The first question is from the line of Chris Swann from UBS.

It's Chris from UBS. I'll do two. The first one on regional trends. If you would be able to share some regional color within that flattish like-for-like in Q2 to date in terms of which markets are outperforming, which markets are relatively soft? And connected to that, could you please elaborate on the markets that accelerated in Q1 within APAC and Latin America or if we look at if we look at Rest of Pandora, which was impressively up 7% in Q1. Just trying to understand a little bit more on the exact market that has been driving that acceleration sequentially. My second one on margins. So Anders, you clarified that the margins this year are expecting -- a more meaningful year-over-year decline at EBIT level in Q2 and Q3. I'm just wondering if you can help us a little bit more on quantification of how we put that 200 bps cost saving bucket of Q1, how do we put it into Q2 and Q3?

If I take the first one, Chris, and then hand over to Berta and then Anders in that order. We won't go into too much detail on April. But for now, you can just see the trends are broadly consistent with what we saw in Q1. So yes, Latin America, Asia Pacific still doing reasonably okay and offset slightly by some weakness elsewhere. So more of the same really, Chris. And on that note, I'll hand over to Berta on Latin America and Asia Pacific, specifically in Q1 and what drove that?

Yes. In Q1, pretty much every market in Latin America was growing. So just name a few, we had Argentina, Brazil, Colombia, all growing in Q1 and Mexico was about flattish to 1%. So good performance across all the region. In Asia, the biggest contributor was Japan, where we got a big growth, like-for-like of 220%, but we also saw growth in Taiwan, Hong Kong and Singapore as well. So these are the main countries that we grew in Asia. And with China, by the way, delivering a slight growth as well in quarter 1.

And Chris, to your question about the EBIT margin phasing -- it will be Q2 and Q3 where you will see some of that -- all of that 200 basis point coming back and more so in the third quarter than in the second quarter. That's broadly the storyline. And this -- yes, I'll leave it at that.

And sorry, if I can just follow up on that Latin American comment. I think in the press release, you mentioned a bit of price repositioning. So are you able to help me a little bit on how much of that like-for-like strength is coming from price and how much is coming from volumes actually?

Yes. One of the things that we have done in the LatAm region is that Latin America until quarter 1 this year it was running in a different price corridor. So the prices in Latin America were in average 50% higher than the rest of the world, and the strategy was a high low. So basically high prices and then a lot of promotions. So what we have done is actually bring back Latin America in line with the global price corridor. So you can -- a consumer can compare similarly in the U.S. or European prices. That's what they are getting in LatAm. And at the same time, we are reducing the promotions. So what we see is really that this is impacting -- it's been the main driver of the 6%. Just for information, I don't know you remember, we talked about it, I think, in the quarter 4 call. We did this after having run an expensive test in Colombia. So seeing increase in Colombia in quarter 1 after more than six months running this strategy, it is definitely delivering the growth that we are announcing now on like-for-like.

The next question is from the line of Lars Topholm from DNB Carnegie.

I will also stick to two questions for now. So Berta, you highlight all the strategic initiatives you're taking, but also highlight that 2026 is a transition year, but that your strategic initiatives should lead to stronger like-for-like growth and be with full effect during 2027. And I'm not asking for 2027 guidance, but just as you have very specific targets for long-term profitability, can you elaborate a bit on what is the success criteria for this exercise should like-for-like return to, what should we say, the old CMD targets of mid-single digit? Or what would you be satisfied with? And when should we begin to see this? And then a question number two goes to platinum plating, which I understand initially, you plan to test in Holland. And then you decided not to do that anyway. So I just wonder if you can put some comments on that. And maybe in connection with that, I also comment on what Anders said that there have been some write-down. Was that on platinum plating?

Okay. So thank you, Lars. Sorry for interrupting you before. You did have right to two questions. Thank you. Yes. So on the long term, this is my ambition is to bring Pandora to the success of Pandora, which is the mid-single-digit growth. And this is what we are all working towards. And as you rightly say, in 2026, we are activating as much as we can, but design and product development, which is the key one, is taking us a little bit more time. So that's it. On the platinum plated, the plans are still to test in Holland. We did have a delay for commercial reasons. One of the things that is key when we introduced this to the consumers, and that came very clearly on all the validation that we did is that water resistance as well as the tarnish resistance, the fact that they can take it to the sea water, it was critical. And then we did have a delay on one of the certifications for the water resistance. Therefore, we are just moving to the next cycle. So everything is still on plan to roll out this year, still in Holland and other markets. And the transition in 2027 is still on plan and on time. Anders?

Fair question on that Lars. The inventory write-downs that sits in this one-off cost bucket profit is not on the platinum plated products, it's on the expected remelt of silver products happening next year. The way that it works from an IFRS perspective is that even though the transition will only start happening next year, so the physical remelt, so to speak, of silver jewelry will happen in '27. Then so once the decision has been made, then the cost will have to be taken already in 2026. So that -- it's really that inventory write-down is related to the expected remelt of silver products next year as part of the overall transition.

And how much does it hurt earnings this year?

It's included in this 50 to 100 basis points overall. It is one of the reasons that we have a range is that there is some uncertainty exactly how much is the inventory write-down going to be. There will be some -- there's also some levers to minimize it and avoid doing too much. But of course, when you transition over a couple of years, 50% of your revenue from a product being produced in one way to another, there will be some write-downs. But exactly how much we can reduce is still to be seen. So that's why we will keep a range on that one-off cost.

The next question is from the line of Daria Nasledysheva from Bank of America.

This is Daria from Bank of America and I have two questions. First one, you saw a meaningful acceleration in Asia and like-for-like revenue momentum. And while you mentioned changing the go-to-market strategy in Latin America, what has changed in APAC for you? Is it better underlying macro? Or are you also changing something in particular to really accelerate growth there? What are you doing differently in Asia compared to history when this was really a more challenging part of the business? And my second question would be on main European markets. When do you think we can expect an inflection there, considering also some strategic changes that you have been implementing across those geographies?

Yes. Thank you. I'll take both questions. Thank you. On Asia, we are basically focusing on it. And let me just elaborate on that. On the Southeast Asia, we operate mainly through distributors, and we basically now open a new office in Singapore, and we have dedicated teams working with the distributors to drive growth. Not long ago, we just have a distributor summit to bring them back all the growth plans that they could get and all the tools for Pandora. So focusing on those distributors. On Japan, it's an owned and operated market and there we are implementing our marketing model of reach and relevance. We have increased marketing budgets to continue to increase the awareness of the brand and we are working as well on with local cultural relevance activation in Japan. So very simplistic, implementing what we are saying that we were going to do and doing that in Japan, either in owner and operated, but also focusing on the distributor markets. That's for Asia. And your second question on the European market. Well, it is basically the whole diagnosis that I presented in quarter 4, and I have briefly remind everyone. While it's true that we are starting to do certain things into 2026, we cannot really activate the biggest pillar, which is new product development in our core. The plans for that will start from 2027. Rest assured, I'm doing everything I can with the teams in Pandora to see if we can accelerate something for quarter 4, but we need basically the entire program, which is product and marketing to be able to start delivering. So 2026, we expect still to be a transition year in Europe. Markets of Europe, of course, we have still Spain and Poland and Turkey and all that growing at high levels, but especially in the mature markets like U.K. and Italy.

The next question is from Andre Thormann from Danske Bank.

I just have two. First of all, on lab-grown diamonds, I wonder if you can elaborate a bit on the second quarter of quite a bit of decline in that category. What are you seeing there most particularly in U.S., I guess? And then second, on the remelt, I wonder if you can talk a bit about why this won't be a tailwind rest of year as well?

Yes. Should I start on the diamond? Okay. So on diamonds, I think you were talking about our performance or the market, our performance, right? Yes. So what we see on the lab-grown diamonds is that we are actually sharpening the strategy. So we have a part of our lab-grown diamonds where the high carats, so the one carat, the two carat at high prices. So for the consumer, there are not many that come to Pandora to spend $1,000 to $1,500 and above. So that part of the business, we are slowing down and is a big chunk of the decline. However, what we are investing now is on what we call the micro fine diamonds. So where the sweet spot of pricing is between $250 on rings and a small pendant. That part is growing, and this is the part of the business that we'll be focusing on from now on. So really and if you look at that price between the $200 and $500, actually, the like-for-like is positive in both in value and units, whereas it's declining on the above $1,000, and this is, of course, now carrying the entire business down.

And then Andre, on the question about write -- remelt write-down for the rest of the year, it's actually a good question, well spotted. When we made the guidance originally three months back, then in the budget in the way that we did the guidance, the remelt cost for the year was based on a silver spot price of $82. That was the spot price back then. Now it's $75 based on the assumption in the updated guidance as of today. So that gives a little bit of more headwind compared to when we made the guidance three months back. So that's why that remelt upside basically nets out for the remaining part of the year compared to the original assumption. The logic works the other way around, when we speak about remelt, then a lower silver price gives a little bit more headwind.

The next question is from the line of Mr. Charchafji from BNP Paribas.

I have two, please. The first one is on the gross margin phasing. Do you expect any disruption in Thailand and Vietnam facilities stemming from the conflict? And would it be fair to assume gross margin ex the 100 bps one-off so 78.5% to be rather similar in the next three quarters with the plus and minus between the component? My second question is on space, given the performance that you are delivering versus guidance, but also it was the case last year. It seems that you -- that your new openings over the past 12 months are performing quite well. So just curious to know if going forward as a space in terms of the like-for-like, would you say that the like-for-like will be even more supported by those? And if it's -- if there is anything to keep in mind on this?

Thanks for those questions, Anthony. On the impact on the gross margin, if I understood the question correctly, then the way to think about it is, of course, we do spend some energy. We have energy cost in the P&L. We do have some freight cost in the P&L. But it's in the big scheme of things, it's not a lot of money. So there will be some -- a little bit higher cost, but not something that has been big enough for us to talk about it as part of our guidance and in the gross margin. In -- we don't have any critical suppliers in the Middle East. So for that perspective, we're also okay as well. In general, I think it's also maybe worth noting that the electricity supply in Thailand as a country is not that dependent on the Middle East. It's -- if I understand it correctly, it's just around 10% of energy or electricity in Thailand that comes from the Middle East. So it's -- so net-net, we are not that exposed apart from fuel through the consumer behavior, obviously, and the macro. On the question about the good performance on the stores that we have opened, I think the way to think about it is that it's the -- when -- as you know, during the first 12 months of a new store being opened, it counts in organic growth only, not like-for-like. But now we're just getting a bigger base to start from to calculate like-for-like once the stores have been opened for more than 12 months. So as a like-for-like contributor, so that's not a factor.

The next question is from the line of Grace Smalley from Morgan Stanley.

Q1 and the slowing you've seen in recent quarters in the U.S. Do you attribute that slowing fully to macro and what we're hearing in terms of the K economy? Or have you also identified any sort of Pandora-specific factors that are also playing into that weakness into the U.S. and any actions that can be taken to help drive improved trends in the U.S. outside of relying on improved macro? And then just a follow-up on the implications from the Middle East. I appreciate the situation is changing very quickly and you've spoken through the supply chain considerations. But could you just also comment on whether you've seen any knock-on impact on -- from the recent developments on consumer sentiment in any of the European markets in the last couple of months?

Yes. So let me -- so on the U.S., yes, we do see the impact of the macro and the K-shape economy as you were referring to. What we see is that the consumer sentiment is disproportionately degrading with the middle and the lower income. As a reminder, Pandora over-indexed on middle income. So of course, this macro is not helping us. What we see is a decline in traffic fundamentally. Conversion and average basket and all that remains pretty much stable, but what we are really seeing the impact is on the traffic. But again, we are not just standing still. These are the things that we cannot control, and that's why we continue to invest in the U.S. that are the plans as well for this year and continue to bring excitement and marketing and product, et cetera. The second question was on -- yes. And again, how much of that is coming because of the Middle East and how much is impacting what we -- I cannot say. What I can say is that it was already declining in quarter 4 in the U.S. and it continues to deteriorate. Of course, the situation on our consumers' daily life with high oil prices, all that is definitely having an impact. The amount of disposable income that they may have for discretionary categories may be impacted. How much I cannot tell you. In the Europe, what we are seeing is that it's been low. We haven't seen a major deterioration in quarter 1. It's not improving. It's not going down, but it's still stably low, especially on the market that we are having some trouble like U.K., et cetera.

The next question is from the line of William Woods from Bernstein.

The first question is just on pricing. Could you just comment on how much pricing you've put through in quarter 1? And then just interested in EMEA, specifically, obviously, on the two year stack there's a bit of slowdown there in the like-for-like. How much pricing have you put through in EMEA? And do you think the elasticity there specifically is still around 1%? Or do you think you've seen a deterioration in the elasticity?

On the first question, hi William, on pricing year-over-year in Q1 is to the tune of 4% as a global number -- global average number. It's not new. It's this year, Bilal just clarifying. It's the year-over-year numbers. So it's not the Q1 action. We actually didn't change pricing during the first quarter. But year-over-year, based on the actions that we've done prior 12 months, it's a 4% ASP uplift and thereby, with a 0% like-for-like in the quarter, then units are down equivalently.

Understood. Any comments specifically on EMEA and the elasticity or anything to say?

Yes, it's broadly in line with the expectations we have. We say it's around 1 the elasticity in EMEA as well. So no change at all in that.

The next question is from the line of Thomas Chauvet from Citi.

My first question on tariffs, Anders, perhaps. Can you indicate the status of your tariff fund with the U.S. administration? I think you talked about this earlier this year. What is the amount that you claimed? And is any of that part of your margin guidance or completely? Secondly, on your 2027 margin guidance, have you started hedging silver? And if so, at what price? And just a follow-up for Berta on North America, please, and the LFL turning negative. You come back to the new pricing strategy in the U.S. and how the consumer is responding. And if you're not touching the entry price points, is it why perhaps there is a bigger gap now between Fuel with More gross margin, which I think was stable and core where you have a lot of chance, I think, where prices are not touched. I think the GM gap between the two has widened in the first quarter.

Thanks, Thomas. I'll start out with the margin questions. On the tariffs, the gross amount of tariffs that we've paid under the IEEPA scheme is just above USD 70 million. And in our guidance, we have not assumed that any of that will come back. So that if that should happen, then that will be an upside to the guidance whenever that might happen one shiny day. The only sort of upside on tariffs that we have built in is the temporary lower tariff level during this 150 days pause that runs until, I think it's early July, mid-July. On the silver hedging, you're right that now with a little bit of additional hedging that we've done since we met last, there is some of the P&L for 2027 that is hedged. And if you dig into the bottom of the company announcement, you can see that the first quarter of '27 the P&L is hedged at a blended rate of USD 46. So if you took that specifically into the '27 margin guidance, then that would translate into 70, 80 basis points of EBIT margin upside for next year. That's not built into the slide in the investor presentation yet. But as we're not specifically guiding for next year, but on an isolated basis, 70, 80 basis points of upside for next year locked in.

Yes. I think on the gross margin of Fuel with More is basically driven by the growth in Timeless. So Timeless is today 80% of Fuel with More. So because Timeless has been growing, then the gross margin of Fuel with More is growing. It's as simple as that.

The next question is from the line of Kristian Godiksen from SEB.

So just a question on the platinum plated products. So based on the website in the Netherlands, you had up for a short while, can you confirm the intention to raise prices for the silver products and that this is not included in the margin bridge? And then furthermore, on the decision of the platinum plated products to be priced at a 1:1 to the silver prices as the price today. And just wondering based on precious metal plated products today are already priced higher than the solid silver prices you have. So, and then furthermore, the platinum plated products, they have better capabilities, both in terms of water and tarnish resistance, so which are important to consumers. So wondering why these products are not priced higher?

I think I got all the questions, but we had a little bit of a noise here, but if I missed something on my answer, please correct me after I have finalized. Yes. So we can confirm that the test that we are putting this year will be about raising silver higher than the platinum plated products. The reason for that is very simple. Silver prices are increasing. And if we keep them at the same price, our gross margin will severely deteriorate. So we are really trying to understand that. Having said that, the reason why we are keeping the platinum plated as well versus silver, it came out of all the extensive testing that we did last year. As a reminder, we went to 35,000 consumers and what the consumer willingness to play -- to pay for the platinum plated product was actually slightly lower than for solid silver. So we are pretty much respecting the learnings. Again, having said that, we will learn more from the test that we are going to be having into this year. That's why we are testing and not going straight into rollout. So if the insights are different, we'll come back on that, of course.

The next question is from the line of Piral Dadhania from RBC.

So I just have one question on the P&L profile and margin composition. So as you move towards a midterm EBIT margin of above 21%, we were just wondering what level of gross margin that would assume and how we should think about the evolution of operating costs as the business transitions to its new raw materials mix?

Thanks for that question, Piral. I think in broad terms, you should think about it as the gross margin coming back to the level where we will be in 2026. This year, we have guided for an EBIT margin of 21% to 22% and basically saying that that's where we're getting back to in a couple of years. And structurally, there will be no difference between GM and OpEx ratio. So implicitly, we are saying that the gross margin gets back to where we will land this year. Now we're not specifically not guided for where the gross margin sits this year, but it will be in the very high 70s. That's the way to think about it. So in a way, if you look at the -- on the surface on the P&L in a couple of years, it will look very much like today. It's just if you double-click on the cost of goods sold, then there will be a different commodity exposure. It's more diversified and lower than what it would otherwise have been. And then there's more labor cost sitting in the COGS. But otherwise, it's the same business.

And -- so just as a quick follow-up, if we may. Like could you just help us understand why you have higher labor costs? Sorry if we may have missed that, but is it just a more complicated process? Is there more labor cost per unit in terms of the manufacturing side of things? Yes, any help there would be greatly appreciated.

Super fair question. The way to think about it, if you produce a charm in silver today, it's one process in a very simplified finance language. But if you then produce it in platinum plated going forward, you first produce the core, which is basically the same as doing the silver solid charm. But then on the platinum, that's a step two where you need to sort of add the plating process, which is somewhat labor-intensive. So it's the second step that adds the labor cost going forward, just like on our gold-plated products today.

Totally. And I just think to add, Anders explained it very well, but important to note that, that's why we've been working on the signature alloy that we call Evershine because then it can behave the same as silver and therefore, the first step of the production will not suffer or will not be impacted. So it's only on the second part, which is just the plating part.

The next question is from the line of Erik Sandstedt from Kepler Cheuvreux.

Two questions for clarification. Firstly, could you just repeat what you said regarding the inventory buildup? Where should we expect inventories to end up? And how long do you expect it to take to normalize it? And are there any offsetting effects on working capital? Or should we basically expect the inventory buildup to fully flow through into higher working capital?

Yes. Thanks for that question, Erik, very valid. On inventory, last year, total inventories ended at DKK 5 billion. End of this year, think about it in round numbers as being going up to around DKK 8 billion, so from DKK 5 billion to DKK 8 billion. And of that DKK 3 billion increase, DKK 2 billion is very mechanical. It's simply that silver and gold prices will be higher plus the tariffs that will be sitting on inventory. And the other up to DKK 1 billion will be -- most of that will be driven by that we are getting ready for the platinum plated transition. So we, at the end of this year, both be holding silver jewelry and platinum plated jewelry for the same designs. And then the last but smallest piece is that we have, in a couple of areas, decided to increase inventories to reduce the amount of stock outs, so improve the stock availability in the stores. So that's the '25 to '26 journey. Then we will stay at that elevated level through '27 as we go through the transition and then step-by-step through '28 and probably into '29, maybe even that's still to be determined, we will get back almost towards the level that where we started out, not -- probably not all the way down to five, but somewhat above that. So that's -- I know that's very round thinking, but that's the shape of it. And you're, of course, very right that when you pay more for your gold and silver from the refiners, yes, it hits your inventory, but our trade payables will go up as well. So that's an offsetting effect. And I'm just looking at my IR colleagues here so maybe you remember, but I think underlying the net working capital, the way to think about it is underlying, we ended at minus 1% last year, and we're going to end at mid-single-digit-ish this year. So a 6% to 7% increase in net working capital. And I'm just doing the math here on -- in my head. So the DKK 3 billion increase in inventories, let's call that 10% increase. And then there's 4 percentage point-ish going the other way with trade payables, not the least, leaving a net increase in net working capital of around DKK 6 billion. I know there's a lot of numbers verbally. I hope it makes sense, Erik. Otherwise, happy to follow up.

That's great. Very helpful. And then just finally, on the 50 to 100 basis points transition costs that are included in your 2026 margin guidance, just to basically confirm, are these -- these are not incremental to the costs already communicated for 2027? Or does it reflect the phasing so that the transition costs will be lower in 2027? Just wanted to double check that.

It's good that you double check on that. It is -- our current thinking is that it's incremental. So on top of the two points of one-off cost transition cost next year. And a couple of things. It is -- we need even more extra labor during the transition than what we thought a couple of months back. And we want to -- so that's one element. The tech cost in making the systems, our systems able to handle the transition, and I can elaborate on that if needed, but that requires a bit more tech cost than what we had thought. And then we are building, honestly, a buffer for potential inventory write-downs when we sort of stop selling silver, then how much is left on inventories, and how much do we need to remelt, building a little bit of buffer there because it is a big transition. So long story short, the 50 to 100 basis points is on top of the 200 basis points next year.

Next up, we have a follow-up from Lars Topholm from DNB.

Yes, it's actually related because you, of course, suspended buying back your own stock because of the margin pressure, which is temporary, but also the higher need for working capital. So, how should we think about when you might be able to resume share buybacks? It's obvious EBITDA will be lower in 2027. But are you willing to temporarily increase leverage, knowing that that will be a trough and then margins will ramp up again? Or have any view on when you could begin buybacks again?

It's a very relevant question, Lars. And I think that the short answer is yes. I think that there could be a situation where we say it's okay to have a higher leverage than the capital structure policy for a short period of time. But if we started -- went out initiating a share buyback program today, then we would be above the capital structure policy for, let's say, two years, which is probably too long also for the credit agencies to think that, that's a good idea. So we also have that in the back of our mind. But could there be somewhere in between where we say now it's x quarters, where the leverage might be a little bit elevated, not too crazy, but a little bit elevated. I think that could be. But before we reach that point, we're still some quarters down the road.

Yes, of course, I realize that, but I could just foresee a '27 where your CapEx will come down because your platinum plating investments peak this year. And also, if you see the jump in working capital this year and then, let's call it, stable next year, then your cash flow from operation should improve quite significantly. So you would be looking into potentially a big free cash flow acceleration in 2027. But is it completely far out to discuss buyback in 2027?

I think the way I would answer, Lars, is that the hurt on the net working capital this year and inventories that will come back at a point in time. So there will be -- as we are in the unfortunate situation that we don't do a share buyback this year, that will also likely be a point in time where you can do more than what you would normally do because your inventories and net working capital is building back down again. Exactly when that comes and triggers a share buyback, it's too early to talk about it at this point in time.

And the last question for today's call is from Kristian Godiksen from SEB.

So just in relation to the confidence level you have in terms of the newness resetting design in order to trigger an acceleration in like-for-like. That will be the first one. And then maybe following up on that, I guess also, should you not see a step-up in like-for-like in the fourth quarter due to newness, both in terms of the new designs coming in, but also the expansion of the Talisman, you comment are something that consumers take well in, and then also the easier comps. And then maybe the second part of the question would be if you could comment a bit on the expected split in terms of design variations launched within the different aesthetics going forward?

Yes. So let me just try to address this in a synthetic way. So the impact of the newness that we are seeing so far is that when we have launched distinctive newness, the consumer is responding to it. So again, we have just seen Talisman, we have seen Bridgerton, and we have seen Essence. So we know that when we do it, the consumer respond positively. So the level of confidence is high. What is coming on the rest of the year, you will have to be patient and see what we are doing. But rest assured that whenever I can accelerate, we are doing so. As a reminder, our development timing, you can have a point of view, whether it's long or short, but it's about 18 months from a sketch to product in market. So again, trying to do our best with those development times. And then for the rest of the year, we are keeping guidance. It's too early to know how the world is going to develop. That doesn't stop us from keep working at it, but I cannot say anything else.

Okay. And on the expected split in terms of design variations within the different aesthetics?

Sorry, yes. So there, the way you need to see, again, I'm not going to go into my whole collection plan and line plan by aesthetic, but the way to think about it is that the first priority is that we need to address what is happening on our core business. We need to make sure that our core business, or the playful aesthetic continue to be refreshed and exciting. And that's why the small program that we have -- we are launching, Pandora Wonders, is exactly doing that. It's playful aesthetic. It play exactly into Pandora DNA, and we are bringing a step change in creativity that is not what consumers is looking forward to. So that will be, by all means, our number one, number two, and number three priority to bring that core back to growth. And then on the remaining, you will not -- you should not expect us to moving into more aesthetics. So you have them in that chart. So the bold, the playful on that, it will be pretty much equal weight. So disproportionate on playful.

Okay. And then just a very short follow-up. Just in terms of the first time for a very long time that online was worse than the physical stores. Were there any specific reasons for this? And do you expect this to continue?

Sorry, we saw that decline mainly coming from the U.S., and I can only say what we just said before. We are seeing really a tough situation over there. It's impacting both. So yes, you see that happening mainly in the U.S. We haven't done anything differently, seen anything differently, just traffic going down both online and offline.

Thank you very much, everyone, and we hope to speak to you in August. Thank you. Take care.