Pandora A/S (PNDRY) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to the conference call for Pandora's Q2 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. As usual, there will be a Q&A session at the end of the call. If you could limit yourself today to 2 questions at a time, that would be wonderful. If you could please pay attention to the disclaimer on Slide 2 and then turn to Slide 3. I will now turn over to Alexander.

Thank you, Bilal, and welcome, everyone. As usual, I'll start with a quick snapshot of the overall quarter. For Q2, I think it's fair to say it's been another quarter of solid performance from Pandora, especially when you consider that we delivered these results in a very challenging external environment. That's not only when it comes to consumer sentiment, but also when it comes to significant volatility in FX, commodity and headwinds through tariffs. Despite this, we are progressing on our overall mission, making Pandora known as a full jewelry brand. As you know, this is the main focus of our Phoenix strategy. For Q2, we delivered 3% like-for-like growth, which alongside network expansion drives 8% overall organic growth. Once again, you'll see within the numbers that our core is stable and then this is complemented with good growth in fuel with more, exactly in line with our overall mission. On profitability, I already mentioned the 3 types of external headwinds we are facing. I say this because they're quite significant now. Despite that, you'll see we're still delivering very strong profitability with gross margins close to 80% and the EBIT margins in the high teens. As I just mentioned, the underlying performance of these metrics is even stronger. That means our core profitability drivers offset a lot of the external headwinds, which I think is a testament to our strong business model. Finally, our return on capital continues to remain very high at 44%, and we continue to drive good EPS growth. That's especially true if you ignore the effect of foreign exchange, which has been moving around a fair bit recently. All in all, quite a good quarter in the context of the background. Now let's look ahead. Can we move to Slide 4, please. As always, guiding forward in the world with little visibility and high volatility isn't easy, but let me summarize our thoughts. From a top line perspective, our guidance is unchanged. We've delivered H1 growth at around 4% like-for-like with organic growth at 7%. Whilst our Q2 numbers were slower than Q1, I want to highlight that we have a strong commercial pipeline for the remainder of the year. This year, some of our initiatives are slightly back-end loaded. You'll remember last year, we launched Pandora ESSENCE in the second quarter, and this year, we have another exciting product pipeline, which will be live from the end of Q3. We also continue to [ ELVE ] our marketing messages. I'll speak about this a little bit later. But in short, we have many initiatives due to start from September and onwards. Therefore, we reiterate our organic growth guidance of 7% to 8% with like-for-like growth of 4% to 5%. Now we've had some clarity on tariffs from a cost perspective, but there is still significant uncertain how this plays out indirectly on the consumer front. Our guidance does not take these factors or a general weakening of the macro environment into account. So we remain incredibly vigilant but currently, we haven't seen many effects of this. Finally, that brings me naturally on to current trading in July. The overall like-for-like trading has been around 2%. But there's 2 important ways to read this. In the first 2 weeks of July, our performance has been negatively impacted by a weak end of season sale this year versus a particularly strong 1 last year. That's partly down to us as we simply had less surplus stock available this year. This effect also impacted our trading in the second quarter in June. Furthermore, you should also be reminded that we launched Pandora ESSENCE last year towards the end of Q2. So it had full effect globally in Q3 '24. This year, as I mentioned, product news is more skewed towards the end of Q3. So overall, we are on track. That's not to say there are not challenges, but it's nothing we can't overcome with our plans. Our EBIT margin guidance, I will let Anders comment on in detail a bit later. However, as a summary, the message is that our guidance is unchanged at around 24%. This now accounts for the full impact of the current tariff levels. We believe this will be a fantastic outcome. I'm sure you'll agree with me that any company that is able to maintain margins around the mid-20s despite significant incremental external headwinds, has a pretty good control of its commercial actions and cost base. Can we now move to Slide 6, please. I mentioned last time how in times of uncertainty, it becomes even more important, we remain clear on what we're trying to achieve. Our north star is the Phoenix strategy. We are changing the perception of Pandora into a full jewelry brand. And the pillars you see on the strategy are taking us towards that. Through the quarter, we executed on many initiatives across the 4 pillars. Importantly, we have a very healthy pipeline of exciting initiatives ahead of us. We think these will attract more consumers to the brand during the rest of the year and next. And you should recall that our runway for like-for-like growth is quite vast. We are only at the beginning of this full jewelry brand journey. That brings me nicely on to the next slide. I've mentioned our overall objective of the Phoenix strategy, namely to transform the perception of Pandora into full jewelry brand. This slide lays out quite well. Some of you may remember, we highlighted the initial arguments at the Capital Markets Day in '23. You can see that today, we are mainly a big player in wrist wear but that's only 18% of the market. So if we continue to change the position of Pandora from not only being a wrist player in the mind of consumers will increasingly open up the other 82% of the market. The purpose of this slide is just to illustrate the opportunity ahead of us is significant across all product categories in jewelry. That's what makes our growth prospects quite exciting for many years ahead. Now it's for us to execute on that promise for marketing and designs, of course. Next slide, please. I mentioned marketing a few times. Let's talk about that now. Probably the most important pillar of our Phoenix strategy. Here, I wanted to highlight what we've been working on and equally highlight what is coming up. As usual, we have a full breadth of tools to drive consistent brand heat. In the quarter, we've used many of our ambassadors to great effect to drive conversation, particularly our presence in Lab-Grown Diamonds. Q2, as always, marks Mother's Day for us, and our campaign this year landed quite well with consumers. We saw that both in the metrics of the brand campaign and our performance across Mother's Day. A campaign like this makes the Pandora's message very strong. Our brand stands for storytelling that can emotionally move our consumers. You can bet we're going to double down on that as we enter into the holiday season with a campaign that deepens emotional connections through our storytelling. Finally, we're also going to increase our efforts to be even more culture relevant across markets. Whilst the global campaign will always remain central to the brand, we believe we have an opportunity to strengthen our local relevance through the use of local talent in selected markets. You can see we're already making moves here with the appointment of Annalisa, a famous Singer in Italy; and Caroline, a prominent fashion blogger in France. You can expect to see more of these engagements in the future. Next slide, please. Alongside strong marketing plans, we're equally excited this year about the creative pipeline we have. This year, our innovation is going to be focused on our core business, namely our Charms & Carriers. We'll be bringing new and relevant aesthetics while emphasizing the Pandora brand promise of being accessible to the many. Last year, we launched Pandora ESSENCE in the first half of the year. This year was skewed towards the second half. In a few weeks, you will see launches of our new mini charms selection and medallions. Both hold good potential in the jewelry market, where we know good consumer appetite seats. In the case of Minis, we're also looking to further strengthen our entry price points. We know this is incredibly important in the current environment. So overall, the past 2 slides should give you comfort for our commercial plans for the remainder of the year. Next slide, please. In the past quarter, I mentioned the launch of our new e-commerce platform. As part of our mission to dial-up brand desirability, we've been investing in this for a complete new look. The new platform brings the brand to life through a much more immersive experience. Since showing promising results last fourth quarter, I'm happy to report now that the platform is live across all of our markets. You can see on the slide some of the commercial metrics, even though it's early days in many countries, which have been very encouraging. This includes a low single-digit improvement in revenue per consumer, which is a fantastic achievement. Next slide, please. Let's now look at our 2 segments, Core and Fuel with more. As you know, our strategic aim is to be seen as a full jewelry brand which essentially entails driving steady growth in the Core whilst adding high growth in Fuel with more. As I mentioned earlier, we're going to be driving more innovation in Core through the introductions of the new Talisman and Minis design. But before that, our Core is remaining relatively robust at 1% growth in the quarter. This was supported by a good performance in our collabs. You can see how over the past 3 years, we've been able to drive good stable growth sequentially in our Core, exactly in line with our plans. Next slide, please. Our Fuel with more segments continued to grow quicker. We grew at a healthy mid-single-digit rate in the quarter, still up against a relatively tough comp from the year before. In Q2, our growth here was helped by strong growth in Pandora ESSENCE and Lab-Grown Diamonds. Again, our strategy has been to drive faster growth in Fuel with more with good sequential growth year after year. And you can see on the slide that it's been working well. So now let's discuss our performance within the markets. Next slide, please. As usual, I'll start with our biggest market, the U.S., which delivered a very strong 8% like-for-like growth. This performance is particularly impressive in the context of a tough market. Importantly, our brand metrics remain very strong, meaning this is high-quality growth. We've said this before, but this is a market where our runway is quite strong, so we'll continue to push our marketing efforts here. Tied to that, we've launched our first new Pandora pop-up store recently on Times Square. Some of you may have seen some pictures. It's off to a very, very good start. Next slide, please. In Europe, our total like-for-like growth across all markets came in at 1%, helped by strong growth in markets disclosed in what we call rest of Pandora, such as Spain, Poland, Netherlands and Portugal. This was offset by weakness in the 4 European markets that we've historically disclosed separately. There's always some variances between countries, but let me talk you through how we see this in a general sense. Then I'm happy to take questions about specific countries. Firstly, I'm sure you'll be aware, the macro environment isn't easy in many of these markets. But of course, we like to control what we can. In that regard, we look to further shop and how we connect with our consumers through telling stories. I already mentioned our upcoming holiday campaign. And in certain markets, we also want to connect much more closely to the local culture. And I mentioned earlier, and we're already acting on this. Finally, we'll also dial up our affordability proposition a bit better. The launch of Minis will help with that. You've also heard me previously speak about rings being a strong entry price product for the brand, and we'll act tactically here in some cases, too. So overall, our European growth comes in at plus [ 1% ] like-for-like, which is a mix of some countries performing really well and some things we need to work on. We're aware of that and are certainly moving ahead with executing on our plans. Next slide, please. In rest of Pandora, we delivered another good quarter of 6% like-for-like growth. As I just mentioned, a big chunk of our other European exposure actually sits here, which helps the growth. I just mentioned some of them in the previous slide, but even beyond Europe, we have many markets which are growing strongly, and that includes Canada, which grew at double digits. In Mexico, which is the other large market in rest of Pandora, we are facing some challenges with respect to the macro and the broader promotional environment. And in the light of that, we have probably gone a little bit too hard on our promo detox journey here, which will be corrected in the back half. Next slide, please. Finally, in China, we had a minus 15% like-for-like growth and performance remains challenging overall. China is only 1% of overall business. So the impact at the group level is minimum. As you may have read in the company announcement this morning, we are taking the next steps in this market by closing around 100% -- 100 loss-making stores. This is part of our plan to reset China and significantly improve profitability while keeping a relevant network in the main metropolis. Finally, in Australia, we saw good improvement to 7% like-for-like growth. This was helped by good performance across Mother's Day and some signs of the macro improving. Let's see how that evolves. Next slide, please. Here, you can see a familiar slide on how we create value from our network. There's been 1 technical change here for 2025. You would have noticed that we're targeting 50 to 75 store openings this year versus 75 to 100 previously. This adjustment is purely related to the high number of closures in China, which I just mentioned, where we're targeting around 100 closures. Those stores do not generate much revenue. So the impact of these actions on organic growth is virtually nothing. So overall, our plan for store openings ex China are tracking exactly as planned. That means we are firmly on track to deliver around 3% organic growth contribution from store openings this year. As always, you'll see on the top of the slide, the economics of the new store openings of Pandora, a fantastic aspect of our business and is highly productive stores. Next slide, please. Finally, before handing over to Anders, I just wanted to highlight that the rollout of our new store concept Evoke is going quite well. We now have a total of 576 concept stores in our new format. I mentioned a new pop-up store in New York on Times Square. Another recent highlight storewide was the opening of a second flagship store on The Strip in Las Vegas. For those of you who have seen our flagship on Copenhagen, the idea is very similar, to enhance the look and feel of the brand and present the brand as a full jewelry brand. I'm convinced that the in-store experience we provide consumers is incredibly important in unlocking our growth. So we will continue to invest here and the new store concept overlaid with a couple of flagships are going to be critical for that. And on that note, I'll hand it over to Anders for a closer look at the financials.

Thank you, Alexander, and good morning, everyone, and please go to Slide 20. I guess you're all painfully aware that we are facing quite some external headwinds from commodity prices, FX and now also tariffs, just like many other global companies, but these headwinds of a magnitude where the impact across the KPIs becomes quite important in order to understand what really goes on behind the scene. And in the company announcement, we therefore break out the effect of this in many of our KPIs. If you look at earnings per share, for example, the reported growth in the second quarter is 6%. But if you take out the FX impact, mainly the weaker U.S. dollar, the FX adjusted EPS growth becomes 18%. So that's quite a different number and quite a different story. On the gross margin, you will see that it was down only 90 basis points in the quarter. And I used the word only intentionally because we are faced with around 170 basis points of headwind from the 3 external factors that I just mentioned and we have, in fact, managed to offset a good chunk of that headwind. And these offsets comes from our pricing actions and cost efficiencies, and you can also see a bit more about that in the gross margin bridge in the company announcement. And the overall message on gross margin in 2025 still stands. And that is that you should expect the gross margin to be flattish to only slightly down in 2025 versus last year despite that we are facing 240 basis points of headwind. And I do think that, that is a good achievement given this level of headwinds. Next slide, please. On this slide, we break down the revenue growth in the quarter, as you show, and I'll just add a few comments to the like-for-like. Like-for-like growth in the second quarter was 3 points lower than the 6% that we reported back in Q1. And there's 2 elements in that sequential development that we just want to highlight. First of all, Easter this year was in the second quarter as opposed to be in Q1 last year, and that had a small positive effect in Q1 of this year of just under 1 point of growth with a similar negative effect here in the second quarter. And secondly, as Alexander mentioned, we were negatively impacted in the month of June from a smaller end of season sale than what we ran last year, and we simply had less surplus stock. And at the same time, the sale last year was quite strong. And now then some of you will probably say that, well, Anders, based on that, you should see the like-for-like in current trading being back up at a higher level than what we saw in Q2. And you're right. So there's 3 things to be aware of here when you look at current trading. First of all, when we announced the second quarter numbers last year, we did highlight that July trading in 2024 was particularly strong. So our current trading should be read in that perspective. And secondly, and this is just repeating the launch of Talisman and Minis sits in late Q3, while the launch of ESSENCE took place in from May onwards last year. And finally, as Alexander also mentioned, we continue to evolve our marketing messages and have a strong holiday campaign lined up. Next slide, please. On the EBIT margin, our performance played out exactly in line with expectations and in line with the phasing through this year, which we have already communicated externally. You will also here see that we faced significant headwinds from commodities, FX and tariffs, adding up to 230 basis points in the quarter, and you can see that within the dotted box on the bridge here. And in that regard, 18.2% is quite a solid EBIT margin. In terms of the factors that we are sort of closer to being within our own control, you can see that, that added up to a slight positive margin impact in the quarter. And here, I'm speaking about the sum of the 3 purple pink bar just to the left on the middle called network expansion, net operating leverage and inflation salary increases versus price increases and efficiencies. Next slide, please, and that's Slide 24. Now on the top line guidance. Alexander has already spoken about some of our thinking here, but I'll just add a couple of points in greater detail. Clearly, since we issued the guidance back in February, the macro picture has become more clouded and uncertainty has increased. And especially when you add tariffs into that mix and how consumers may respond to that, that is a big unknown. And our guidance do not include any potential significant impact from worsening macro just like when we had the announced guidance earlier this year. Now we did see like-for-like in the second quarter and current trading being a bit below than what implicitly sits in the guidance for the second half. And we do indeed see the business delivering a higher like-for-like in the second half of 2025 based on some of what we've already covered being the phasing of initiatives this year as well as the strong pipeline of commercial initiatives lined up from September onwards, which Alexander spoke about. So on balance, there's no change to our top line guidance. Next slide, please. The EBIT margin guidance is also unchanged. We still expect a margin of around 24% this year. As you can see in the bridge, we will be facing around 280 basis points of external headwind and this also includes the tariffs factored into our guidance for the full year. And offsetting around half of those 280 basis points of headwind will be quite okay and a testament to our ability to invest in our business, drive leverage and at the same time, move ahead with our mitigation plans. Next slide, please. Given the many moving parts externally, we wanted to update you on our latest thoughts about the EBIT margin target for 2026, so next year. First, I also here want to highlight that the total external headwinds since we issued the EBIT margin target back at the Capital Market Day in October '23 now totals to a very significant 500 basis points. And that's the sum of the headwinds from commodities, FX and tariffs, as you can see in the bridge here in the dotted box. That is quite some headwind in less than 24 months. As you remember, we updated our CMD target for 2026 to be around 25% margin back in the Q1 announcement in May. And that included the headwinds from commodities and headwinds at that point in time, but we did not include tariffs back then. Now we have added the full effect of tariffs as well as the latest update on FX and commodities. So let me talk to you a little bit more about that Since we updated the target to around 25% back in May, we have seen another 30 basis points of headwind from commodities and FX. But the good news is that we are able to offset this through further pricing, which we have, in fact, already implemented. And we therefore, now confirm 210 basis points of margin uplift from price increases, as you can see just roughly in the middle of this bridge. Given all of these continued increase in external headwinds, we are dialing up our cost efforts even more. We did launch our group-wide cost program that we call Project Silverstone already early this year, and we are now taking another look into further opportunities. At this point in time, we still expect savings equivalent to 50 to 100 basis points of margin uplift next year. And that's captured in the box that we are calling net operating leverage and efficiencies. So overall, if I ignore tariffs for a second, the message is that we can absorb the additional headwind from FX and commodities that we have seen since Q1 and still target an EBIT margin of around 25% for next year. So now bringing tariffs into the equation. that is going to give us an extra headwind of around 450 million next year from 2023. That's 120 basis points of headwind, as you can see to the right in the bridge. And by far, the majority of that tariffs -- those tariffs are related to Thailand, obviously. It is a bit too early for us to conclude how much of this we can mitigate and how fast. But what we can say is that we are indeed dialing up our cost focus even more, and we will be watching out on what happens to consumer prices and consumer behavior due to tariffs. For now, what we want to say is that we will deliver at least 24% margin in 2026, and then we will come back to you in due course with updates. And on that note, I'll hand it back over to Alexander.

Okay, Anders. Thanks. So to conclude on everything, I want to highlight a couple of things. First, I think the Phoenix strategy continues to work and Q2 was another step forward, 8% organic, 3% like-for-like. In the current backdrop, we think is a good achievement. Secondly, whilst the external cost pressure is significant, as Anders spoke about, we continue to show good agility and execution. That's why we can still deliver very high profitability levels. And finally I'm super excited about the commercial pipeline, which we've spoken about. We have exciting products lined up, strong marketing for the holiday season. So we look ahead with confidence, knowing the brand typically does very well in our gifting periods. And with that, I think we can move to the Q&A.

[Operator Instructions] Our first question comes from William Woods from Bernstein.

You've seen a significant growth slowdown across geographies, still bit more and obviously experiencing negative volumes as you pass through the pricing, but you've decided to protect margins. How do you think about managing the business for growth in margins? And if we keep seeing a sequential decline, is the aim to keep protecting margins at the expense of volumes? And then the second question is on your space growth. Given the environment, given the volume declines, why are you so comfortable continuing to add space in that environment?

I mean, I think the answer is relatively simple. The brand's reason to be is to offer affordable jewelry. So we will obviously protect margins, but not at the expense of consumers still thinking that Pandora is a good offer. And that we keep track through all sorts of equity trackers where we measure let's say, the value equation. So that's going to be the offset. So we're not going to kind of die on the short on margins if we have to give up the position of the brand. That would be ludicrous. So this is the answer really. And of course, it's a tightrope walk when we have all these kind of costs flying around inflation and all of these things. But that's why we are here. And I think we've proven over the last few years that we manage this equation pretty well. So if there's anything to go by, history would suggest that at least we have some experience in kind of navigating through this, yes. And Anders, maybe you can talk to this space point.

Yes. Thanks for that question, William. It's a super strong business case to add new stores. So as 0 consideration about slowing that down. We go as fast as we can and just a couple of points on that you can see that in our EBIT margin bridge that the network expansion that we've done or the last year was driving 80 basis points of margin uplift for the group in the quarter. And that's, of course, a reflection of that basically from day 1 when we open up a new store, it drives margin. So we are -- as a rule of thumb, you can think about that when we open up a new store, then even in year 1, the EBIT margin is between 35% and 40%, which basically means that all of the investment gets paid back within the year. Like-for-like growth in the physical network, in our own physical stores was a couple of points positive in Q2. So that's important to know as well. .

The next question will be from the line of Chris Huang from UBS.

The first 1 is on kind of the July comment. I think, Anders, you commented earlier that July trading last year was particularly strong. But can you maybe give us a little bit more quantification on that? Are we talking about a 9% growth in July last year? Just trying to better understand the shape within the quarter, please. And then secondly, on mix. You constantly see a continued outperformance of the Fuel with more segment, which I assume has been very helpful from a mix perspective. I appreciate the mix is always a little bit more abstract than pricing and volumes, but can you perhaps help kind of quantify the mix component a bit as you have been seeing recently? Is there some high-level principles that you can provide perhaps something like x percentage point, outperformance Fuel with more will translate into x percentage point of mix accretion?

On the July trading last year, July last year just got into the double-digit territory on like-for-like. And the mix I didn't get that question.

No, the question is on mix. So I think we have a mix -- gross margin on Fuel with more, which is, what, 82-something and change. And on the Core, it's something around 78% and then you can just do the math, right?

But means they're both margin accretive on the bottom line. Obviously, if -- no matter whether we grow in 1 or the other category. Thank you.

The next question will be from the line of Thomas Chauvet from Citi.

Two questions, please. The first 1 on product innovation. Can you talk a bit about Talisman and Minis? From an inventory standpoint, how will this ramp up into the holiday season? Are you going to do the same kind of one-off shipments to distributors as you did with ESSENCE? And how do you think about these 2 innovations as a game changer to bring moments back into a positive LFL? And more broadly, how do you think about customer response to innovation in the mass jewelry market? Do you feel more newnesses needed at Pandora particularly at lower price points? So that's a lot of questions, sorry, on product innovation. And secondly, on marketing. Can you comment on how the marketing strategy is evolving with the second iteration of the BE LOVE campaign, which is obviously global, a bit 1 size fits all. And as you said, they need to adapt communication to reflect cultural differences in some markets where you have weakness like in Europe. And just on the numbers, maybe for Anders, marketing was 14.5% of sales in H1. So towards the top end of your historical range, how much do you expect in H2 and next year? So is it still closer to 15% rather than the 13%, 14% to 15% range historically?

Thomas, 2 questions. You had like 16 questions, but we'll help you. On product innovation, so I mean this -- your question on how we ship. I mean, we have enough inventory to fill the pipe. And the distributor part of our business, what is 15% of our revenue base. So the question is more to make sure that we can service the 85%, which is our own channels, of course. So this is no concern. Then on the Minis and Talisman. I think you kind of already answered almost the question. It's important that we continue innovating in opening price points. I think if we kind of look ourselves in the rear mirror, we probably innovated not enough towards that part. So 1 thing is, of course, you can kind of massage your pricing. But if it's not exciting, then it just does have the job. So I think Minis in particular, but also Talisman will offer very, very attractive price points for the concept that we're offering. So that's 1 part of it. The other 1 is, of course, that we keep bringing new aesthetics, new ideas into the moments or the core platform. So then you have a spillover effect that there's something happening overall with the core. So I think there's kind of a two-sided benefit of bringing things that we know consumers are interested in based on all the research that we've done. On the marketing strategy, the BE LOVE is a global campaign. That's not changing. The evolution, I think, if we kind of look at it sequentially, started off with a heavy tilt on, let's say, moving up the brand desirability, the kind of the way we portray using very different caliber of photography and the type of people portraying the brand, I think what we are now adding more would be what you saw in the Mother's Day campaign. So we're maintaining all of that kind of brand lift, and we're also now infusing it much more with stronger emotional stories like the 1 if you've seen the Mother's Day campaign, if not, we can send it to you. So what you'll see in the back half of the year is exactly that. The Christmas campaign, which we've just qualified is actually the strongest piece of ad, I think Pandora has ever going to put out there. So we have a big, big hopes for that. So that's quite exciting together with all the other things that we're doing. And then to your point on adapting culturally. When it comes to the global campaign, we test them across the main markets. And we know that they are kind of working hard for us. I think what we mentioned in the past that maybe they became a little bit to, let's call it, say, anglified. That's now being addressed. But what's also important is the comment I made on adding culturally relevant talent. So let's say, there's going to be a stream of communication that's done by, we can call them local key opinion leaders, be that brand ambassadors, influences what not, to the tune of this Annalisa and many, many more. So that's probably a layer that we're going to strengthen. That also comes on the learning of our Spanish business, which has been growing, let's say, double digit for years now. That's where they've done a particularly good job. So in addition to the global campaign, they've overlaid this with local talent. And that's also, I think what's happened in the last 2 years in the U.S. where we managed to kind of move the needle is to also add some local flare to the global campaign. And now we have lined up Thailand, which you maybe have noticed. So the pool of talent that we're managing to bring in and support the brand is also strengthening a year on as we go forward. And then your last question was on the marketing. We've said that the 13% to 15% is not a highly scientific number. It's a benchmark of what healthy and growing brands typically invest. It depends on the situation. Some years, we've been more towards the 13%. Now we're a bit more tilted towards the 15%. I think we'll be playing in that spectrum. It depends on kind of what we have to talk about with the customers. So it's not a fixed number. But we have enough space in our P&L to move around, and we could even invest more if we needed to now. We have a few other costs headwinds that we need to deal with. But we will be -- that the guidance of 13% to 15% is still going to stand.

And Thomas, for this year, in order to get to the EBIT margin guidance this year, we are not sacrificing that line in the P&L. And I think for the full year, you will see it from a percent of revenue will end up pretty much in line with 2024, which, in absolute kroner means that we are investing a decent amount more than last year, especially in the second half.

The next question will be from the line of Anthony Charchafji from BNP Paribas. .

It's Anthony from BNP. I have just 3 quick ones. The first 1 would be on the Q1 trading, please yes, sorry to come back on that, but it seems that the market is focused on the second derivative element of top line rather than your strong delivery on the rest of the P&L and the balance sheet. But if we think about the 2% in July, would you be able to quantify the underlying like-for-like if we exclude the end of season sales and maybe if you can adjust it for ESSENCE. Any comments also on August trading because your guidance basically implies a 4% to 6% in H2. So July might be at just 12%. So just a bit of more color on this key current trading number. My second question would be on your gross margin. And I guess it's a bit mixed in the OpEx as well. But on the promotional activity in your gross margin bridge, I mean, it seems that there is only 60 bps of -- in Q2, only 60 bps of pricing efficiencies net of promo, I guess there is a bit more also in it. So what's the outlook for the promo at Pandora, also especially because you raised prices in August by maybe 2% globally and probably a bit more in the U.S. Any comment on this would be helpful. Is it linked to, I don't know, ESSENCE being in the base and needing more discount and the outlook for the rest of the year. My last question is a bit more forward looking would be on the APAC expansion. It seems that you have a new headquarter somewhere in APAC, I think Singapore. So is the APAC expansion happening post 2026? And do you have any color to share today?

Yes. Thanks, Anthony, for those questions. I can start out. On the current trading and the 2% that is indeed an impact of the end of season sale, combined with the fact that we haven't launched the Talisman and Minis yet. So when we're trading in July, we are also comping that we have the full impact of ESSENCE in the baseline for last -- in last year. So the way to think about it is that with the initiatives lined up with Talisman and Minis coming in, actually at 2 weeks' time, roughly, just on one of the last trading days of August, with the holiday campaign and the twist we've made to that getting sort of a stable, closer brand DNA, the investments that we're doing with local ambassadors in a couple of countries and investing properly marketing money in general in the second half of the year, we're quite comfortable that we will see this acceleration when we meet next time in November. August trading is the same as in July so far. Now we're just a couple of weeks into it, but in the same ballpark as we saw in July. And on the gross margin, it's actually a good call out. We only have 60 basis points, if I can call that an uplift on the gross margin from that. The answer actually lies in the last word on the bucket, we call it pricing, efficiencies and other. That's the way we name that bucket. And the other in that, we do have a remail provision related to diamonds, 60, 70 basis points. I think it is 70 basis points. And it comes out of that shifting focus on our diamond collection towards somewhat smaller diamonds rather than larger stones. And as part of that, we are taking a prudent provision as we see how we can repurpose the bigger diamonds that we have on stock. So underlying the pricing uplift is bigger than what could it look like when you just look at the bridge like this.

Yes. And on the APAC expansion, I mean, if you remember well, we moved part of the APAC responsibility to the LatAm organization and now we've decided to move it back out again. So the establishment of HQ in Asia is merely a reflection of that we're going to put this in there. Other than that, there are no huge acceleration plans at this point in time. I should probably mention that the Japan business is actually performing quite nicely. We never get to talk about the smaller countries, smaller Pandora countries, I should say, it's a big jewelry market out there. But we'll, that's going to be a topic for the future. So this is more kind of getting ready for rather than any immediate changes to the current plans.

Our next question comes from the line of Lars Topholm from Carnegie.

There are 2 questions from me as well. So 8% organic growth, that's actually better than most of the consumer discretionary space yet. The share price reaction seems to indicate there's something else wearing people, and I guess 1 could be price elasticity because arguably, it's easier to increase the price on [ EUR 20,000 ] hand back then on jewelry. So I wonder if you can put some comments on your observations on demand when you do pricing? And then the second question is related so. When I speak to, I guess, yourself, but also a number of your peers, it seems everyone is very focused on mitigating gold and silver price inflation, not just through pricing, but also through changes in design, changes in metal composition, et cetera. So I wonder if you can put some words on what you're doing there and also know that it, of course, takes a while from you do something and until we see the numbers. So is this anything you see as a relevant margin driver, maybe second half of 2026, so how should I think about that?