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Good morning, everyone and welcome to the Conference Call for Pandora’s First Quarter Results for 2023. I am Bilal Aziz from the Investor Relations team. And I am joined here by our CEO, Alexander Lacik; CFO, Anders Boyer and the IR team. As usual, there will be a Q&A session at the end of the call. If you could kindly limit yourself to two questions at a time, then that would be great. Please pay notice to the disclaimer on Slide 2 and turn to Slide 3.
I will now turn over to Alexander.
Thank you, Bilal and welcome everyone. Let me start by saying some key highlights from our first quarter. As you all know, the macroeconomic environment continues to remain challenging with consumers still under pressure.
Despite this, we just delivered yet another quarter which demonstrates our resiliency. The organic growth ended at plus 1 with our like-for-like flat. Underpinning this is our relentless execution of the Phoenix tradition. We’ve seen good progress on our key strategic initiatives. Worth highlighting is the strong growth of our Timeless and Pandora Me platforms.
We also continued to complement this Friday through positive growth from our recent store openings, all of which are already accretive to both sales and EBIT. Given this value creation we continue to see ample opportunity here for this year and beyond.
You shouldn’t be surprised to hear that profitability remains strong. Our gross margins continued to be rock solid and were helped by positive impacts from our pricing actions taken at the end of last year. We say this is an important milestone for a brand and we'll talk more about this later on.
Finally, the cash profile of the business remains structurally attractive. We remain firm on our commitment to return to highest ever cash distribution back to shareholders this year. Now let’s move to Slide 4 please.
Looking into the remainder of 2023, we remain confident of our prospects, but equally mindful of the ongoing economic uncertainty. We started the year well, and therefore updated our organic guidance to minus 2 to plus 3 with the EBIT margin guidance unchanged at around 25%. The lower end of the organic growth range would require a notably weaker economic backdrop than what we see today.
We appreciate that this is still a relatively wide revenue range. It's still early in the year and we will continue to update you here as we move through the year. A few words on current trading. So far in Q2, we’ve seen our underlying trading to be broadly consistent with what we saw in Q1. And I want to remind you that we are only four weeks in.
The environment remains uncertain trading is concentrated around Mothers Day which is still ahead of us. Nonetheless, we contain to be pleased with the underlying health of the business.
Let’s move to Slide 6 please. Before we go into the Q1 details, let’s take a step back and look at exactly what we're trying to build here at Pandora. In a nutshell, it is to be the largest and most desirable jewelry brand in the world. Underpinning this as our execution of the four growth pillars of our Phoenix strategy.
This covers driving a strong brand, leading in design expanding our reach in core markets and driving personalization. I’ll take you through in detail some of our initiatives in the coming slides, but I wanted to reiterate that everything we do really stems from Phoenix.
Next slide please. One aspect of a strong and desirable brand is offer sharp value proposition. At the end of the last year we successfully adjusted our prices to offset some of the inflationary pressures, we, like others have experienced. To remind you a bit about the journey we’ve been on here.
In 2019 and ‘20 we went through a major promotional detox of the Group that indirectly raised our prices shifting more of our business into full price. Then early last year we appointed a specialist pricing team. They were tasked with carrying out a comprehensive pricing analysis across the Group.
After extensive modeling and live testing we decided to move forward. We rolled out the global price adjustments in Q4 last of year. It’s important to highlight that we protect both strategic as well as opening price points. Since then, we've seen a broadening neutral impacts to Group revenues and a positive impact to our margins.
This has been a good journey for us. We remain mindful of the current pressure of consumers and staying prudent to the brand promise of offering affordable jewelry. However, we certainly see further opportunities here. It's too early to say how much or when but we will continue to be guided by the data and are confident we can stretch our pricing architecture further.
Next slide, please. It’s imperative that we continue to bring relevant consumer innovation in general, but to the Moments platform in particular. In January, we launched a new design of the iconic Pandora bracelet, the Studded Chain. This has been developed by our in-house design group and is unique for Pandora.
It offers a totally different texture and Shine which is our previous bracelets. The design came nearly 20 years after Pandora’s initial snake chain bracelet which resonates very strongly with consumers still today. I am happy to report that the new carrier bracelet has started very well and has driven good incremental growth for overall bracelets and there is a very strong consumer pull with this new design.
This demonstrates our ability to build out our Moment’s platform for the long-term. We know when we sell more bracelets the consumers will come back to us for a chance. This unique captive business model is what’s puts us at a big advantage versus the rest of the jewelry market as it secures a highly profitable and recurring revenue stream to our biggest platform.
During the quarter, our base Moments business continued to perform strongly. Overall growth was slightly down, but this reflected some weakness in newer charms with a new bracelet underpinning growth we remain confident ahead.
Next slide please. As part of our Phoenix strategy, we continue to extend our offering as a brand across different platforms. It's good to see some encouraging results here. Pandora Me has had a strong start to the year at plus 21% like-for-like growth. This was relatively broad based. We optimize the assortment last year and execution has improved across many countries.
It’s a good example of our continued investments and learning styles. Timeless, which is our second biggest platform has also had a strong start to the year plus 11 like-for-like. Again, this was broad based and helped by better execution and a strong Valentine's Day offering. I also want to highlight that Timeless acts as a powerful platform in attracting new customers into the brand. Our internal data here shows that our entry-level rings are opening up new consumers for us. We can then taken them through the entire brand journey and retain them for long time.
Finally, performance in Diamonds was stable and in line with our expectations. We continue to learn a lot here and see this as a big opportunity to transform the brand. We can see from the data that the consumers appetite for our diamond offering, it’s certainly there. During this year, we will expand our assortment of a more category ranges and continue with our plans for further geographical expansion. We will also ramp up our marketing efforts here to drive greater consumer awareness.
Next slide please. If you have a closer look at the specifics of the quarter, organic growth was plus 1 but like-for-like was flat. Underlying trading was broadly stable to for the quarter. We are pleased with this continued resiliency of the Group.
As I'm sure you are all aware by now the macroeconomic environment continues to be uncertain with consumers under pressure. We have seen some pocket of weakness in some of our markets, but the core of the Group remains stable and has been so for four straight quarters. This stability speaks to two things. First we continue to invest into the brands to make sure we are at the front and center of consumers’ minds.
Secondly a diversified geo footprint remains a key pillar of strength. We believe we can continue to list a structural penetration of the brand, higher and pretty much most of our core markets still.
Let’s move on to next slide to take a detailed look into growth for the first quarter in some of our key markets. Let’s start with our biggest market, the US which delivered minus 7% like-for-like. This was in line with the previous quarter, but was impacted by some signs of greater consumer hesitancy with conversion rates slightly down. Looking at the performance a bit deeper, our performance improved sequentially in our own and operated stores, but was offset by weaker performance in the franchise channel.
We are indeed looking at ways of helping our franchise partners to improve their performance. As I mentioned previously, we will be expanding our offering in diamonds in Q3 and also expand our rollout across more stores in the U.S. We are confident this will bring incremental growth later on in the year.
Next Slide please. The performance in our key European markets improved to flat like-for-like. This was helped by a small improvement in most of the markets. Germany was very strong at plus 11 and saw solid growth across all platforms. We continue to see a long runway ahead in this market for the brand.
The UK remained resilient despite the weak consumer backdrop. Italy and France saw small sequential improvement although remained soft given the macroeconomic backdrop. In Italy, while early days we have noted slow improvements in the underlying trends.
In Australia, our performance delivered minus 5 like-for-like, which was impacted by the weak consumer sentiment.
I’ll touch on China in detail on the next slide, but on a high level, our performance improved through the quarter in line with the economy reopening. We’ve seen a sequential improvement in traffic. I want to highlight this is a gradual return but it’s encouraging to see the positive trends continue and in fact our April like-for-like growth is now positive albeit of course over a rather weak base.
Finally, in rest of the Pandora, we continued to see strong growth driven by many markets. Mexico continued to stand out at plus 15 and Spain also continued to remain solid at plus 8. There was also strong double-digit like-for-like contributions from many other countries such as Portugal, Brazil, Turkey and Poland to mention a few.
Next Slide please. Coming back to China, after three years of COVID-related disruption, I'm happy to report that we are getting closer to their brand relaunch later this year. China has been a drag on the Group like-for-like growth since 2020. And we now see an opportunity to turn the table. As we said previously, this was more of a selected and gradual relaunch in a city-by-city basis.
We look to see what we learn in each city and take it forward from there. We believe the brand historically has not had the correct focus. The first priority will be to reposition the brand and ensure we portray the core values. This will focus on Pandora's unique proposition how to express yourself through our Moment's platform.
Another important aspect will be to invest sufficiently in media to drive awareness and finally meet the customers in our channels with the correct sales narrative and storytelling. One important criteria for this effort to be successful is that traffic into stores significantly steps up from where we are today or else it becomes challenging to ensure the right return on investment.
Next slide please. I wanted to remind you again of the significant value we create from our network expansion. We saw 3% organic growth contribution in Q1 from network additions, carried out over the past year. This follows from already 3% we delivered last year. We will continue to push forward here this year as we target to open an additional 50 to 100 new concept stores, and a further 50 to 100 shopping shops/kiosks.
Given the macroeconomic situation, we have the option to keep momentum here as access to good locations could open up. Our midterm ambition has been to open stores in the best 600 locations that we previously mapped in 2021. As you can see on this Slide the type of financial impact that would have on our numbers. We don't think the story stops there.
We continue to see further opportunity to expand the store network in areas where we don't have a Pandora store today. We'll update you later in the year on our plans to take this further.
Next slide please. Finally, I'm happy to report that after two years of extensive testing, we opened doors last month to our brand new store concept Evoke 2.0 in Italy. This is an important milestone in our Evolution as a brand, the concept elevates the desirability of the brand and allows greater consumer engagement across all of Pandora's platforms. It's effectively a total redesigned internally and I'm confident this will mark a step change in the way consumers engage with the Pandora brand. We will be rolling out more than 40 new store concepts this year, most of them in major cities in our core markets.
And on that note, I had over Anders for a closer look at the numbers.
Thank you, Alexander and good morning or good afternoon, everyone. Please turn to slide 18. The key takeaway from a financial perspective for the quarter was that performance was stable on the top line, despite the macroeconomic situation and our profitability remains strong. I'll comment on revenue and EBIT on the following slide.
So I am here's on Slide 18. And I'll just pick out some of the other KPIs as usual. Our gross margin continues to strengthen and increase to 150 basis points to 77.5% in Q1. And this is a continuation of the upward trends that we've been seeing during the past few years. The gross margin in the quarter inclusive a drag of 70 basis points from foreign exchange and commodities, but the underlying drivers continue to be strong and there's a positive impact from our pricing actions that is also in the gross margin this quarter.
As you will remember, we decided to increase inventories last year during ‘22. And this is why you see the working capital being higher on a year-over-year basis. On a sequential basis our inventory levels are broadly flat and for the full year of 2023 we also expect inventories to be broadly flat in line with what we communicated back in at the full year announcement in February.
Finally, I'll just mention that that the slight increase in leverage, net interest-bearing debt to EBITDA reflects the higher shareholder distributions, which we decided to pay out in order to move up from the low end of our capital structure policy range by year-end to around the midpoint of the range.
And then go to slide 19, please. And here we'll have a look at the revenue performance in the quarter. Organic growth came in at 1% for the corner as Alexander already said. But let me take you through a couple of the building blocks here in the bridge. First of all, like-for-like growth was flat in the quarter and this was in line with the underlying level back in Q4. And it's in line with the high end of the guidance that we have for the full year of ‘23.
Secondly, we saw another quarter with solid contribution of three points of growth from network expansions and just repeating what I've accepted also said, I'll do that again, but it doesn't just tried top line, but also bottom-line in our P&L.
Then, as you can see, in the pink bar in the bridge here, then this growth was offset by the impact, from the facing of selling of minus two points. And, which is mainly a reversal of the positive impact we saw in Q4 of last year and this impacts of facing impact is mainly something that we expect to see here in Q1. And that also means that we will see the network’s impact being more visible in the reported organic growth already here in the second quarter of the year.
Then go to Slide 20 please. This is the EBIT margin and on the EBIT margin the conclusion is that, profitability remains solid and in line with our expectations with all underlying drivers progressing as planned.
And as a reminder of what we said in connection with the full year announcement the EBIT margin in the first quarters of the year, I expect it to be below 2022. And then Q4 will be above 2022 and then with the full-year broadly in line with last year and that's also what we see here in Q1. In the underlying margin in Q1 and that is what we as usual have in the dotted box in the middle of the bridge, we saw positive impacts from the network expansion and the price increases and this was then offset by the planned investments in Phoenix and the phasing of cost that we had expected this year.
And the reported EBIT margin was also impacted by the selling facing impact that I mentioned on the previous slides. But overall our underlying profitability and the drivers remain unchanged and strong.
Now then let's go to Slide, 22 and the guidance. As Alexander mentioned, we have updated our financial guidance slightly. So let me just quickly remind you of our thinking and where we stand today. We've started the year, well, with a flat like-for-like and current trading remains in line with that and thereby at the high end of our guidance.
It's still early on in the year and the macroeconomic environment remains uncertain. But based on those two factors we decided to update slightly the financial guidance for organic growth to minus 2 to plus 3 and thereby lifting the low end of the guidance from previously minus 3%. And as you can see in the bricks here, the updated guidance corresponds to a like-for-like growth of between minus 4 and flattish for the full year.
Now then I think the question that you may ask then is that, what this then means that Pandora guys that at life, like-for-like growth remained flat and isn't there a case where like-for-like is positive in ’23? Question mark and there is two points here that we would like to mention. First of all, the low end of our guidance would require a notable worsening of macro and trading conditions during the remaining part of ’23.
Macroeconomic certainty certainly is still there. It’s still early on in the year and let’s see where macro environment goes in the remaining part of the year.
Secondly, if we put macro conditions aside for now and then just look at our internal plans in both the short term and the longer term, then we have great confidence that we can grow Pandora at good like-for-like levels and even higher organically due to the network expansion. We already said that back at the CMD in ‘21, and we'll talk more about that at the CMD in October in London.
In the short-term, however, macro conditions flat or likely to continue to wait on our like-for-like performance and that is essentially what our guidance is saying.
And then please go to Slide, 23, and the EBIT margin guidance. It's unchanged at around 25%. We started Q1 in line with our expectations exactly, as we said at the full year announcement and we are on track to deliver broadly flat EBIT margin versus last year for the full year.
And as a reminder, the guidance this year includes an extra element of flexibility as we've called it and that, in short that means that if macro hits harder and grows land towards the lower end of the guidance, then we will take cost actions that can keep the margin around 25%. On the other hand, if growth lands towards the upper end of the guidance, we still have the flexibility to invest even more in future growth, if we decide to do that. And that principle that we outlined at the beginning of the year that that still holds.
And on this slide, we have laid out the building blocks for the margin guidance again and they are broadly unchanged versus what we presented in connection with the full year announcement back in February. And with that I'll hand it back to Alexander and Slides, 24.
Thank you, Anders. So to conclude, we are very pleased with how we started the year. I think we've proven that over the past four quarters, we know how to navigate uncertain times through our strong brand and unique captive business model. As Anders said, the environment remains uncertain ahead, but we will continue with the prudent approach in managing our cost base while not compromising on major strategic objectives.
So, we look ahead to the rest of the year with confidence. And next, slide please. Before we open up for the Q&A, I want to make a little of advertising and remind you of our Capital Markets Day in London. That's coming up on October 5 and we hope to see you all there for an exciting program and a great dialogue. You won't regret coming. Anyways, with that said, please open up the Q&A.
Thank you. [Operator Instructions]
The first question will be from the line of Grace Smalley from Morgan Stanley. Please go ahead. Your line now be unmuted.
Hi, good morning. Thank you for taking my questions. I have three, please. Firstly, on the current rating of the flat like-for-like that you've seen in Q2 to-date, could you elaborate more on what you're seeing by region within that? And then, secondly, on pricing, I think you mentioned that you see further opportunity for price increases going forward? Could you maybe elaborate on what we should expect there? What you've seen on the price increases to-date that gives you confidence that there's more opportunities for price increases in the future.
And also, if we continue to see silver prices rise, would you look to use price increases as a potential margin of that going into next year? And then, lastly just don't gross margin, and as we look at the gross margin through the rest of the year should we expect some kind of strong performance as to what we saw in Q1? Thank you very much.
Yeah, I agree. I can take the first and then probably the third question, as well. And - but I'll go through deep into the current trading by region. I think what we can say is that, there's no structural shifts compared to where we've seen what we've seen in Q1 or apart from China. But we've already mentioned that in the announcement this morning that since late March, China has been in process compared to the double-digit negative that we saw in Q1.
But apart from China, there's no changes across regions broadly speaking. And maybe I can say gross margin as we as we speak, I think you should expect the gross margin to keep holding up and growing year-over-year. We will continue having some tailwind on the on the silver prices, actually a bit more on tailwind on the silver prices as we go through the year, given that we've hits all of the year already. So that the 77.5% that we delivered in Q1 is a good way to think about the remaining part of the year.
Yeah on the pricing I just take a step back contrary to kind of the high-end luxury brands that use pricing as a revenue driver. This was not the intention when we did our pricing action and also their modeling and testing we did suggested that there would be a elasticity around the 1.0 Mark which is kind of what’s bearing out. But we retain the upside on, on the margin side, of course.
So we are ending up with a structurally higher profitability on those items. And that's the 4% on average that we took in Q4. Going forward, and what we said is, we will continue to be vigilant around the affordability aspects of our brand. So pricing will be used mainly if not only as a means to offset the cost inflation in with when it's hitting us.
So there might be some scope to consider this going forward. There's nothing in the plans as we sit here today. And then on the silver price, I mean, we - in a way we hedge the rolling 12 month hedge. So that's a way to somehow manage this. But of course, it depends entirely on where silver price goes. If silver price goes north of $30 per ounce, I'm sure we will have a different point of view.
But right now, that that's not really on the cards. It's I think it's mainly for other aspects of the business where we see cost price increases coming through. So, yeah, that that's current view on pricing.
Okay. Thank you very much.
Thank you Grace. The next question will be from the line of Kristian Godiksen from SEB. Please go ahead. Your line now will be unmuted.
Hi, can you guys, I’ll start with two questions. So, first of all can you comment a bit and give some color on the difference in performance between the retail and franchise stores you see across regions? And so, what are the underlying regions and could this trigger more acquisitions/takeovers?
And secondly, you mentioned that network will continue to work with strong margins. Can you elaborate a bit on the margin impact from the network growth and maybe do that in time stages? So what are the full margins for say, an average store that’s been open for a year or when did stores reach this 40% fuller margins you also mentioned? Thank you.
So I'll pick up the first one. So what we have - if you go back a couple of years then I think it's fair to say that the franchisees performed a bit better than our O&O. Then if you know a little bit closer in I think we've kind of level that playing field and now it's kind of the delta is starting to spread in the other direction where our O&O in general are, driving like-for-like a bit stronger than the franchise partners.
So that's kind of just we understand the performance history. The key driver right now seems to be one of two things or both. It depends a little bit on where we are in the world. But typically we can see that the level of inventory and the quality of that inventory is a little bit lower than what we see in our own stores. So that that's one aspect. And the other one is, of course, as things are little bit tighter around the world, we can also see that the number of staff hours that that we put in is, more on the positive side of things, which means you secure conversion rates stronger.
So those are probably the two main drivers and then there's a whole array of other topical things in between, but those will be the two main points. And we're trying to now work through with the franchise partners, where we can and where there's room for that conversation to at least address the inventory position. Staff hours, of course it's a discretionary decision by the franchisee.
So, we are just trying to point out where we think that they're leaving money on the table. And in some cases that that looks like it's meaningful money that that's being left behind. But I think that's kind of the commercial view. And the maybe Anders you can talk a bit about the network question.
Yeah, thanks for the question on the network question. I think, with the in general the ramp up is quite fast on the other bottom-line. We have stores that are almost instantly at full runrate, normal runrate to some others that takes sort of towards a year. But across all stores, they are all as a minimum margin neutral for the Group, even in year one, meaning 25% percent or above, which some even being closer to the 40% that you mentioned already in year one.
The differences in the ramp up depends on a number of factors including what was the strength of the brand obviously in the area, do we have a brand awareness in the area already or is opening up the store in that city on the street is that part of building our brand awareness? And the other important factor is can we get colleagues in the stores, store manager other safe colleagues that know about the brand already, are we hiring? So someone that coming from the outside that that also has a clear link to how fast we are ramping up. Margin - slightly margin accretive to the Group already in year one, which obviously a kind of a luxury situation to be in.
Yes, definitely. Can I just ask a follow-up when you see year one and it’s just to be sure it’s the first 12 months, right, it’s not end of the year, so it’s the runrate for the first 12 months not after 12 months.
You are right. Exactly.
And then, on the stores when you are in dialogue with the franchisee to, on the underperformance, it didn't mention whether that could trigger any more acquisitions or takeovers.
I mean, nothing, nothing has changed in that respect, in our network strategy. they are our partners if there's a contract in place. We both part adhere to it. So that there's no trigger point in the contract just because a couple of points like-for-like behind. This is, it's a commercial business conversation that we're having.
Yes. And when you surrounding, when you comment like-for-like points, is it also the same for the revenue per store? Is that the – because it obviously depends on where the base was. So the revenue per stores also on a like-for-like basis, higher for your stores compared to franchisee stores.
There's no generic answer to that. It depends very much on where we are in the world. Typically Pandora started out as a franchise business. So, in some markers that our partners have the very good locations. In other markets that we're revenue per store is high as the – I think on – actually on average the revenue per store was at a touch higher for the partner stores than our own stores across the world. But it's, it's for different reasons, so to speak.
Yeah, okay. Thanks a lot.
Thank you, Kristian. The next question will be from the line of Michael Rasmussen from Danske Bank. Please go ahead. You'll line now will be unmuted.
Yeah. Thank you very much and well done guys on navigating in a challenging water. So, two questions from my side also. So first of all, can you just add a few more details on why you think you did so particularly, well, when you're took markets such as Germany, Mexico, and Spain? And also, if this is the case, if you strip out, I think, you mentioned, easy comps on Germany, and I think also there was some store opening impacts from Mexico.
Just to get a kind of thinking in terms of the underlying growth and also if this is obviously something which is going to continue?
And then if you could add also some further comments on the US market and here, I'm in particular thinking about the conversion rate weakness that you have seen. I was under that that it's probably different across store types, but maybe if you talk about also geographies in or states in the U.S. any particular areas that you see weaker or better from that sense? Thank you.
So what are we doing in Germany, Mexico and Spain. I mean, okay, so Germany, we this is now ongoing saga. It's been running strong now for the last two-plus years. We changed a bit the model, I think we have a very strong management team in place. There's no kind of magic bullet in the set, I think what's different there, what they managed to do is to put, have a marketing plan, which is more of a - what the larger markets can afford, i.e., to be always on versus if your small in our network then typically you only have let’s say decent marketing muscle around the key consumption players Valentine's, Mother's Day and Christmas
Valentine's Mother's Day. And Christmas Christmas obviously, being the strongest for the jewelry category, but Mother's Day. And then there is not so much activity in the periods in between. That’s what we manage to do in Germany. We manage to plug, plug that. So there's kind of an ongoing activity. Of course, it's not all TV advertising, it's more social and other channels. But that - that is I think is the key driver of the German - of what let's say what's different in Germany.
Mexico, I think it's also been on a massive growth journey. That's both been driven by like-for-like as well as organic growth. So nothing really new there. They just keep kind of working their way through that. Also with decent support levels and a strong activation by the store network.
Spain, in fact is one of our strongest countries in terms if I look at the brand equity and it's pretty much the same story there. We've done a very, very good job. We've cleaned up the network in the last few years. We had a, fair amount of underperforming particular multi-brand stores. We've taken over the shop in shops in a courting list which is like 20 odd percent of the business.
We put our own people in there. We manage the merchandise and we can see very, very strong response by the customers. And actually courting list also acts as a portal into not just our brand, but many, many brands. So, if you do, well there either kind of opens up the brand for the brand journey to continue. So, I think those are kind of the main points in the, in those geographies.
I'm not sure I understood there was a question under that. Maybe you can repeat that, sorry.
Yeah, just on the conversion rate in the US and in particular areas that you see do better or worse. And if it was just a bit more flavor on that.
Yeah, I mean in general, when we look at U.S. we don't see major discrepancies on the performance. We have been a bit weak on the west coast when this was run by the franchise partner, which we had there. So that we've taken that back. That’s not massive. It kind of follows that the awareness of the brand is a bit low on the west coast and what we see on the east coast as an example.
But other than that, there's nothing - no major differences. It’s not like if you look at Europe and you're performing, bad in Greece and great in Sweden. We don't have those type of - it's a more of the marketing program and the go-to-market is a national program in the U.S.
Conversion rates, what we've seen - I'm just looking up here, conversion rates. I mean it's, we have - so if you look at the O&O for the quarter in the US, traffic is actually up double-digit. Then the conversion rate is at the high level, but it’s down a touch. So part of that conversion rate when traffic goes up, arithmetically your conversion goes down.
We don't really have a good formula to understand exactly how this correlation works, because in different periods of the year, it behaves differently. What I see though is that there's a delta between us and the franchisees, for instance where our conversion is higher than they are. And that comes back to the comment I made prior on staff hours and maybe not having the right merchandise.
That probably is the main part that would explain it. So that's as much as I can kind of see. If I look at the basket size and average selling price of units per transaction, we tend to be similar between us and the franchisee. So it's really it's a conversion game more than anything else.
Okay, great. Thanks for clarifying that, Alexander.
Thank you, Michael. The next question will be from the line of Chiara Battistini from JP Morgan. Please go ahead your line will be unmuted.
Hello, hi. Thank you for taking my questions. The first one is on your marketing spend, which was down in Q1. And I know the base was quite high from last year, but I was wondering if you could update us on your views on marketing spend for this year? And notably in context of more product launches in the second half of the year. The China brand reset. So, any updated thoughts there?
The second question is on Evoke, the new store concept. I was wondering if you could share any nicher KPIs or any evidence of what you've seen and experienced, with this new KPI? And finally, a question on how you see gifting and the resiliency of gifting is historically, you've always mentioned that you see gifting as a more resilient segment, within jewelry.
But now you're talking about some, some pressure on conversions in the U.S. You've talked about the in the release, about trading down in the UK. So, I was wondering whether you could tell us more on how you see this thing is performing right now and you're out for gifting for the year. Thank you.
Okay. So, the marketing spend for the quarter was a touchdown. But if I look at what that buys me is pretty much on par with what we got last year, and the reason and the delta in between us that we've done a media tender during last year, which was very successful. So, from a consumer feeling in the brand, it's literally speaking is the same.
So there's no difference there and I can also see this in other metrics that we look at, so. And then, for the, for the guidance of the year, we're still in that 13% to 15% for the full year. So nothing there has really changed much.
On the EVOKE 2.0, we opened the doors last week. So I think it might be a touch early to comment on that specific store, which was in Italy. But prior to that, we have had previous iteration of EVOKE. This is now the EVOKE 2.0 that we opened last week, which when you have an opportunity to see this is a little bit different in the look and feel.
We typically performed ahead of the comparative marketplace which could be a region typically or comparable stores on that concept with a couple of points in the sellout growth. So that's kind of what makes us quite confident that we know, we have something good in our hand.
And on gifting, we've done some research on this and actually we don't see a major sentiment shifts from consumers, in terms of gifting, It may vary between the three gifting Moments, Valentine's, Mother's Day and Christmas. Christmas obviously, being the strongest for the jewelry category. But Mother's Day we see very much at least, of course, these are claimed responses from our customers.
But we see that it's kind of literally on par with what we've seen in prior years or so. So that probably speaks again, to the point of us remaining router resilient in the moment of gifting. And we're just entering Mother's Day.
So I don't have any data on that. We'll talk about that when we speak in August. But our Valentine's Day performance was actually very good, which, again, just again, kind of proves the point somehow that gifting is, is a point in the year where Pandora seems to excel. So, that would be the point I say.
Great. Thank you very much.
Thank you, Clara. The next question will be from the line of Klaus Kehl from Nykredit. Please go ahead. Your line now will be unmuted.
Yes, hello. And two questions from my side. The first question is about the current trading. So just to be - just to be perfectly clear about what you're saying about the study of Q2. Is that we should expect and like-for-like in the range of zero and then 3% growth from the network expansion, meaning that you are seeing and organic growth in the range of 3% here in April. Is that the way to understand it or will there be an impact from the selling again here in yeah, in Q2? That's my first question.
And then, secondly, you have a negative like-for-like growth of 26$ in China in Q1. But you mentioned that, yeah, things are starting to turnaround. Could you be more specific about what's you are seeing here in April? That would be my questions. Thank you.
Hi, Klaus. It’s Alex here. Maybe I can start with the current trading piece. You're right. So if we close the quarter now and second quarter now and looked at our underlying like-for-like trend, we would be at around 3% organic growth given that we have the network is expansion on top or so. In other words there, we don't expect any significant sell-in facing either way neither positive or negative here in the second quarter.
Yeah, and then on China, what you can say is sequentially as traffic starts increasing, that is starting to trickle through in our numbers. So because, each month is a little bit better than the prior. Broadly speaking now, of course, then between Jan and Feb, if you want to get really into the details, there was a shift - calendar shift, where Chinese New Year it fell last year.
So you would have to look at the two combined somehow. But then coming into April we're actually in positive territory when it comes to like-for-like. So the traffic is coming through the system somehow. But I should also mention again that it's a rather low levels still versus the pre-pandemic situation. So we still have, some ways to go before we are back into two similar territory that we were before the pandemic
But could you comment on the level of like-for-like growth her in April? I was talking about a 5% 10%, 20%, I thought the ballpark figure.
I think here the only thing we can say, Klaus is that it has been 2% to 5%, but I think we wouldn’t have called it out. It has to be of course, something that is a nice, nice, double-digit number. But as Alexander said, that was a significant lockdowns last year, still even though it's an easy comparable this doesn't a a double-digit positive number. But on the long, that's the first time for some time. We see that, but it'll put it all helps.
Thank you very much.
Thank you, Klaus. The next question will be from the line of Lars Topholm from Carnegie. Please, go ahead. Your line now would be unmuted.
Yes. Congrats with what I thought was a solid quarter. A couple of questions for me. One goes to your guidance for like-for-like of minus 4 to 0. And as I think in your comments, when you presented, you said the low end of that range would require a significant deterioration in the macro climate. But I wonder, isn't that also the case for the high-end because you, if your runrate is zero now, that's the high end of your guidance range.
Your comps will clearly become easier as the year goes on. And if China, even though it's a small part of sales goes from minus 40%, 50%, 60%, to plus double-digit that should incrementally add a couple of percent to still outgrow. So, I just wonder how you end at 0% unless the high-end also includes a deterioration in the underlying market? So, that's really my first question trying to understand why that 0% shouldn't be a positive number.
Second question goes to the overall markets in particular us and UK. So, based on the intelligence you have to the extend, it is relevant, wow was Pandora's performance relative to the market was it better? Was it broadly in line Or was it worse? Thanks.
Yeah, hi Lars. Thank you for that question. I think that that's a well framed question. You are right that comps are getting easier as we move along in ‘23. We started seeing some macro impact already in early Q3 of last year starting out in - mainly in Italy. And then, as we were moving on into the back half of ‘22, more countries being impacted by macro.
China to go from a drag to as a minimum flat. And that's actually what the guidance assumes that we - at least stop the drag from China in the second half of the year. And you might call that conservative, but I just kill it a chance that that China could add to revenue growth in the second half of the year, given the that the past obviously, in the last couple of years we don't want to bake that into the guidance for the even though it's a small share of revenue that could be an upside.
Let's, let's see. So, in a way, I guess, you are right in the way that you frame it, that that in order to remain at around 0% like-for-like then you should even there see a slight worsening on the impact on consumers. If we listen into what this is the macro experts are saying that's kind of also how we see it saying that there is a delayed effect on higher interest rates, mortgage rates, inflation a delay in the impact before it really hits through on consumers.
Again, we're not - we've been trading around this level for some time now. We are not seeing trading at this point in time below the high end of the guidance. We are at the high end of the guidance. And the way we think about it is that, we like to plan out the year making sure that we have set the cost base to make sure that it - if it's going to be a difficult year, then we're prepared for that.
If that doesn't happen, it's always easier to scale up than down. But it is early in the year Q1 so far so good. Let's see Q2. April is a fairly small month in Q2 actually. It's about Mother's Day and that's coming soon in the next in the next couple of weeks, And then when we have Q2 under the belt, let's see where we are.
That's completely understandable, but just to be perfectly clear. So, everything else equal the high end that sell out guidance also assumes some kind of macro deterioration. So that was how I write your answer is that correct?
Yeah, I guess that's a fair way to interpret it, because we do get a bit easier comps on both the macro and China in the back half of the year.
Exactly. Thanks for letting us.
And Lars, and then…
And then on the market, on the market share. So, as you know, these sources are not, they're not perfectly lined. So whatever I say, you have to take with a grain of salt. But if you talk about the UK, for instance, we're using something called O&S. And, the data we get from there covers both watches and jewelry. We don't have a breakdown within that, but if I look at that then - and then that’s reported both in value and volume.
Volume is a bit even more difficult to understand to be honest. But if I look at the value during last year in UK, we outperformed the markets pretty much for all the quarters that we have data for and that that has carried into this year. So, in UK it seems like now whether it's 1% or 5%, this is this, I would not put my money on that.
But it looks like we are outperforming a soft market in UK. So that's kind of how we would view that. In the, we have credit card data and now we also have something called BEA. And regardless of how I view that, it seems that towards the back end of last year, we started gaining a bit of share and that seemed to have continued into to this quarter.
But again, it's gaining - holding or gaining a bit of share in a soft market. That's probably how you should view both US and UK.
Maybe just…
Can you give some hot numbers on the overall markets in Q1 based on those sources?
So you have it underneath, here it goes. I’ll give you the numbers and that’s why I'm careful with not quoting them, because if you to believe Citi, then it's the quarter is down 19%. Bank of America would have it down 2% and then this BEA would have it down 5.5%. So, take your pick.
Yeah, and so I think the minus 19 and have a buy waiting for that.
But that's why we are very careful with this. But in that context, I mean, and you have our organic - and you should not compare the like-for-like. You should compare the organic number, because that's what they would reflect, right? So in that context our Q in U.S. was down, I think three points in organic. They are about so – if I am clarifying - thing on the O&S and BEA it is both the public official Bureau of Statistics, Office of National Statistics, I think, is in the, in the UK Bureau of Economic Analysis in the U.S. So it should be broad valid data.
Yeah. Thank you very much.
I speak to my general manager in the US, of course, that the market is only down 2%, then you know that. Right?
Thank you, Lars. The next question will be from the line of Piral Dadhania from RBC. Please go ahead. Your line now will be unmuted.
Thank you. Morning everybody. So two questions from me. The first is on the flat retail like-for-like and if you could maybe break it down into price volume and mix. I understand that the pricing was around 4% taken at the end of last year when you said that there was no sort of revenue contribution. So the thought process that we have is volumes were probably down by a similar amount on that 1% elasticity, you talked about.
But then, I was just wondering where the Brilliance kind of contribution comes in, because we would expect to see some positive mix effects coming through from that. And maybe nobody has asked the question so far, maybe you could provide an update on Brilliance and how that's going? You said it's on track, but what should we expect in terms of contribution by the end of this year on a consolidated basis if possible?
And then the second question is, just on, is on eyewear and ancillary categories. So, one of your key competitors at the end of last year announced a eyewear licensing agreement. And it looks like they are diversifying a bit more. I was just wondering if that's an area that you would consider in the near future and whether product diversification is something that we can expect to hear about at the upcoming CMD later this year. Thank you.
So, on your first question, we don't - we really don't have a proper, let's say GMBA or mixed model established as yet. We're looking into that. But that really - we don't - we don't have to take that as a separate conversation. I don't have a handy answer to that. We are not guiding a specific size of collections. And you should not expect us to do this.
We are happy to report on the like-for-like performance on all the various collections, and then there's plenty of material that you can deep dive into. And on the diversification, question, our Phoenix strategy, calls for staying squarely focused on the jewelry category. So, we don't have any plans to enter that space. That said, it doesn't mean that if there is a, interesting licensing opportunity for the brand, which means somebody else handles it from top to bottom, that that we're not close to that conversation.
But so far we've been very focused on staying with our own operation in the jewelry space. And so that you should not expect us to jump into any major activities outside of jewelry for the time being. And if and so then we would of course let the market know.
Maybe I can just add Piral, on the first question. Directionally, your thinking is right if you look at the mix piece, it's very stable and that’s been very stable for a long time. So we look at each of the price brackets across of what we're selling. It is quite a super stable. There has been the slight shift on down trading, but it’s actually is really small stuff for all practical purposes.
I would say that the mix piece is this close to zero with the dynamics on the price increase and thereby units, as you mentioned broadly being where we are in Q1.
Thank you. But if we think about the ambitions - thank you, that's very helpful. If we think about the ambitions for Brilliance though, should we expect that it will - do you expect it to contribute to mix over the medium-term as it ramps up? I appreciate you are not giving targets on where it could get to et cetera. But is that the ambition? Is that it should be to mix? Because it feels like the messaging has shifted a bit away from sort of Brilliance and what that could deliver and towards more regular pricing surveys and price increases on a like-for-like basis.
So I just wanted to understand whether there is a deliberate change in the messaging that you're giving us today?
No, there is no change. I mean, what we've said for other platforms before we did diamonds, we said that each new platform needs to reach let's call it a critical mass within our own organization in order to get the right space in the store, the right attention from the sales associates to get the attention and marketing and whatnot type of communities we have in here.
We put a you know a very rough number that that probably means each of those collection has to hit at least a billion Danish kroner within a few years, and that's a very wide. There's no magic science, but that would suggest that there is sufficient productivity for the items. So that the store people wouldn't kind of stick them in a drawer and not pay any attention to them.
We haven't really put any of that thinking on the table for diamonds. It's a new category for us. We're learning. The long-term ambition is, of course, to make this something that is quite significant to Pandora. But that’s the journey until we get there.
And I think maybe when we get to the Capital Markets Day, we will probably put a bit more rigor around what I just said. But when we launched, this was - this could have gone in many different directions. Where we are now, we're very pleased with the, let's say, the performance up to this point, but we need to expand the assortment. There's plenty of things that we need to do in order to realize a much bigger business potential going forward. But in the Capital Markets Day, we would definitely put spotlight on this, because I think it's very relevant question, so.
Thank you very much.
Thank you, Piral. The next question will be, from the line of Antoine Belge from BNP. Please go ahead. Your line now will be unmuted.
Yes, Hi, it's Antoine Belge at BNP Exxane. So, two questions. I actually like to follow up on the lab created diamonds and especially with regards to the EVOKE 2.0 format, because I think you were quite transparent in saying that in Q4, I'm going to quote you, you didn't quite catch the crack the code in terms of how to deal that specific clientele, especially at a time when it's more about selling Moments, et cetera.
So is it possible already to share a bit of what the new format will bring in terms of that selling experience, which take much more time.
Second question is, what I prefer is two-in-one to say, around margins. And so I understand that these tender offer allowed you to lower the cost of advertising. But so, is it a saving that we should have sold for the full year on the future? Or do you think that it would in a way be better to reinvest that savings, and they – a similar to sales ratio.
So basically, adding more for your for your bucks. And yeah, so the second question – another start within the second is about any indication about the quarterly margin in 2Q as we had mentioned that Q1 would be lower. So I don't know if you can flag things that would make the margin different from last year. Thank you.
So on the first question, it's - the EVOKE 2.0 and actually EVOKE as a start is not just about the diamond experience. The idea is, if you - I mean, you've been, I'm sure you've been into our existing stores. That was kind of conceived when Moments was the main idea in everything that has to do with the operation. The way it’s presented, et cetera, et cetera. The idea behind EVOKE 2.0 was to maintain that high level of productivity that we need in peak trading moments.
But also to allow for more of a self exploration for an ability for consumers to kind of see that we have to offer more. So it is not just about diamonds. Diamonds is one of the collections, of course, in that experience. And then, and if you go into the EVOKE 2.0, now you will see that we're using the walls to essentially have like permanent displays for the different experience that we want to offer. So there's an engraving station.
There's a gifting station that you have Pandora Me. There's a new station, et cetera, et cetera. So it's a way for us to physically use the space to showcase you more. When it comes to the specifics on diamonds, I think it’s something which we are still learning. We've played around with different things in the US, where there's been kind of a put back in the store that had a separate table.
There's a sit-down area. So, I think this is something that we're still trying to work through. But what we're not trying to do is to create a completely different experience inside EVOKE. It's a Pandora experience and Pandora will then offer you Moments over here, Pandora Me over here, and diamonds over here.
Of course there's some different idiosyncrasies for them, but essentially it should still be a Pandora experience. I'm not trying to emulate an experience that you wouldn’t have when you go into a high-end luxury brand for instance, because this is not Pandora. So, we are trying to find our own ways through this. Then on the media tender, as we've said in the guidance, the EBIT guidance is about 25%.
If things go really south, well, then we will have to do cost activity to protect that that guidance. If on the other hand, the business performs better, then that would open up some space to invest more. And that's probably in that kind of frame that that we could consider reinvesting some of that. But the media tender has been such good that I actually I can maintain more or less the same pressures I had last year.
My bet though is, as markets go soft, the pressure from the competitive pressure is going to reduce. If I look at the full year, thereby actually relatively speaking, giving an upper hand. So already with that scenario, I think I can deliver more. And then if we were to over-accelerate on top of that, that completely is dependent on the macro and the consumer sentiment.
So we see that that kind of comes through in the numbers And then I'll gladly hand over the last question to Anders.
Thanks for that. And yeah, on the question about Q2 and margins, what was the way to think about the full year on margins is that the Q1, 2 and 3, the EBIT margin is going to be a bit below last year Q4 above, and then we'll be landing the full year around 50 basis points below last year. You can always look at numbers in many different ways, but the 50 basis points going from 25.5% delivered, actual last year to around 25 for this year.
It, that's incidentally equivalent to the net effects and silver price impacts. So that's one way to look at it at that 50 basis points change is purely the more technical part of what happens in the P&L. But Q2 specifically think about it like, like in Q1 with the EBIT margin being down versus last year, I think it's important to stretch that there's no structural changes.
I'm not accepting, I am not sitting looking at that. A,B, C needs to happen in order for the full year EBIT margin to play out like this, it's just cost phasing, combined with number one, combined with some revenue phasing on the selling here in Q1. That's a Q1 specific thing. And then the quarterly impact on FX and commodities, for the full year, we have a net impact on the FX and commodities of 50 basis points hit wind.
And that - if we break that down those 50 basis points down by quarter then that's a hit wind in Q 1, 2, 3, and then a tailwind in Q4. So, between the first three quarters and Q4, there's more than 100 basis points swing from FX and commodities. So, there's also play place in a bit.
Thank you very much.
Thank you, Antoine. The next question will be from the line of Maria-Laura Adurno from Bank of America. Please go ahead. You line now will be unmuted.
Thank you very much for taking my questions. I actually have three questions. So the first one is with respect to the second quarter. I know you probably cannot give us much detail. But I was just wondering if you could maybe shed some light around if you have any type of collaboration or new line that or new products such as, for example, the Margo Collection that came out in 1Q last year that you will be launching.
The second thing is with respect to China, can you please provide a little more clarity as to what you will be doing from a marketing effort standpoint in terms of like, basically getting the volumes up there? And then the third question is, if you can already share any type of qualitative thoughts with respect to what we should be expecting from the Capital Markets Day in October? Thank you very much.
So on the, I mean, we don't reveal our collaborations ahead of time and sometimes it's also because that's what written in the contract. But, normally, I don't want to give my competition a heads up anyway. But what we are doing, and I can talk to is, I'm sure you're aware that Disney has their 100 year anniversary this year.
So, each month, we are coming out with one new item which has been extremely popular. So that's what's happening. There's going to be something happening in the back off, but as I mentioned, I can't speak to that. And in China, on the specifics, I mean, the specifics are – I think the most important discussion for today is like two or three years ago we said we want to go with the national relaunch in China. Then midways through this kind of wait and see that we've been on, we said we're going to do the top five, six markets on the condition that traffic was similar to what it was pre-pandemic.
As I mentioned before and it's worth repeating, we are far away from that. So right now, where I'm sitting, it really doesn't make a ton of sense to spend a lot of money when the traffic just naturally isn't there. We still want to learn about the marketing program and all the other things that we're trying to execute, so we will most likely pick one city to begin with in Q3.
And if traffic then picks up faster, then we can always log on more cities as we go, but that's probably the key point for you guys to take away from this call. The main strands of the relaunch is new advertising there's more media pressure. We’ve retooled sales narrative in the shops. We refocus more to focus on the Moments story. Let's say, so we stay focused on what kind of the core of Pandora is about.
I think those are kind of the key points, then there's a ton of detail underneath there. But that, that would be for the sake of this conversation. Those are the main points worth mentioning. CMD, Bilal, maybe you want to talk about the CMD?
Yeah. And thanks for the question. And so yeah, later on the year, clearly, we have been on a evolution since we announced Phoenix in 2021 and we'll update you on progress across the key pillars that we’ve already announced. The way to think about it will be sort of an evolution going forward of the strategy. But there's clearly elements that we will be excited to talk about, as well. So, hope to see you there on the 5th of October.
Thank you, Maria-Laura. The next question will be from the line of Freddy Wild from Jefferies. Please go ahead. Your line now will be unmuted.
Hi, guys. Good morning, Alexander and Anders. Just one quick one for me, please. Could you please talk a little bit about your inventory composition and whether it's still full of those high runners which are easy to sell? And that 22% I think it was year-on-year inventory growth. How that – the cadence of that will go through the rest of the year to get to be flat year-on-year full year picture? Thank you.
Thanks, Frederick. I can take that one and we are very, very happy with our inventory composition. No, no flags at all to raise on that point. And so, the way to think about it, yes, the inventory is up year-over-year, but sequentially, it's flat. So, just taking a rolling back at year end a bit, we decided to increase our inventory as last year in order to drive up availability to a higher level. So that consumers less often or very seldom go into a store or online and can't buy or find that something is out of stock.
So, and so, we did that during last year and reached the level of inventories that we’d like in the back half of last year. But that still means that as of Q1, the year-over-year inventories are still up, but yet just repeating it almost flat sequentially. So if we deliver at the midpoint of our revenue guidance for ‘23, you should expect inventories to be flat year-over-year with some flattish year-over-year when we get to the back half of or get to the end of 2023. We're quite happy with the level of inventories that we are operating at.
Okay. Thank you.
Thank you, Freddie. The next question will be from the line of Abhinav from Société Générale. Please go ahead. Your line now will be unmuted.
Yeah. Hi, I thanks for taking my question. One question on your sales concentration. So you said that Mother's Day, Valentine's Day and Christmas are like the most important events. So, I mean, I know it's difficult to point out precise numbers. But on a normalized level what would be - like how much of your annual sales will come from the three days? That's one. And second is on your sales by channel. I mean, I see that the wholesale sales declined by an accelerated 20%, while your retail sales sequentially remained stable. I mean, it grew 12% in 4Q and it grew 12% this quarter. So any color on that? Thank you.
Do you have the number?
Sorry.
Conversing with my colleagues here. I don't have a number pulling out off my hat on your first question. Like the way - maybe I'll just look it up as we as we speak to maybe I could start out on the other one and the number you might be referring to might be, so look at the overall revenue decline in wholesale. And that does make look a little bit out worse than what it actually is. Because we have been taking a quite a number of stores during the year from acquiring or taking off franchise partners and that obviously means that then the revenue by channel that goes out of the wholesale channel and into our own stores.
But then, when you filter out all of that, then going back to what Alexander said earlier today that like-for-likes of the underlying - so real performance if I can call it that like-for-like performance in the wholesale channel is below what we see in our own stores. It has been like that for a while, but the gap is clearly bigger in, Q1. But not to the extent when you just look at the reported revenue numbers.
And then on and then if you look at the - for example, at the year full year, then the revenue split and you probably you can see that in the public numbers already, but it’s roughly that we have to the tune of 40% of the revenue in Q4 and then Q1, 2 and 3 be almost sort of very broadly similar around 20% of the full year revenue each of the Black Friday, Christmas clearly being the biggest trading event.
But then when you do get, for example at Q2 to where in this year, the bulk of Mother's Day falls in May. Then the month of May is - what is that 70% 80% bigger than April, and thereby almost constituting a bit more than 40% of revenue for the full quarter. So, the trading events are sort of quite impactful and in Q2 it's the modern state, which is also in the top three or four for the full year in terms of revenue.
Okay, okay. Very clear. Thanks.
Thank you, Abhinav. The next question will be from the line of Thomas Chauvet from Citi. Please go ahead. You line now will be unmuted.
Good morning. Thanks for taking my questions. Firstly, you’re talking about trading down consumer behavior towards lower price points in the UK. I assume it’s trading down within Moments. But are you observing the same phenomenon within Pandora Me or Diamonds for Pandora? And then are you not seeing that pattern in France, in Germany and Italy, have a specific about the UK I think in the press release.
Secondly, Alexander earlier this morning in the media interview, you said that the relaunch of China will be gradual rather than to many cities at the same time. Is that your OpEx investments spread across there for H2 ‘23 and H1 ‘24 particularly the marketing and are you planning to open or is it's some China stores to the evil concept?
And just a bit of clarification on your margin bridge, Anders in your slide 23, it says 100 BPS drive from Phoenix Investments and that’s as previously guided. But in the press release on Page 16, the guidance for that margin breach shows 150 BPS margin drag from Phoenix. So is that a typo or is there an underlying increase in the Phoenix investment that would potentially back you EBIT margin by 50 BPS? Thank you.
Yeah, on the first question, I'm just looking. So what we have in UK this is Q1 I am talking owned and operated, which is let's say, a big chunk of the business of course. My traffic is up double-digits year-on-year. Transaction volume is up a couple of points. Baskets is up a few points. And UPT is up, which means, that the average selling price is a touch, a touch below water line. So that's probably - so in a way, you're somehow compensating a slightly lower ASP. But it's not massive. It's a few points slightly lower, ASP with more people coming through the doors. So this trading up or down is not significant, it's not massive. There was something but it's and it's a similar trend on e-com looking at it quickly here.
Let me just double check too. Yeah, you have the en effect, ASP is actually up two points. So it's more in the stores that there's a slight, but is really not much to ride home about Thomas, if I'm honest, I wouldn't make a big deal out of it. And France and Germany, Italy. Now this is not a major deal. I think, what's more important is the is the general consumer sentiment and the macro which drives the behavior in those markets than this kind of trading down.
I don't really see this as being a big point. And then in China, I think we – listen, I mean as we said, when we built the budget for the year, we did not assume that China would reopen. So therefore, we had let's say, a business as usual type of budget to hold for somehow. And then of course, at the moment, we kind of hardcoded our budget then China, somehow declared that that it was going to reopen itself.
So this has been more playing a bit by the year. And as I said, the traffic has been slower to come back then versus where I think it needs to be. And therefore, we will do, - we will do it once in if things change in the next 30 days? I'll accelerate it. So, with the type of margin profile, we have in the business, we can generate sufficient funds from within and then we'll top it up a bit with the Group support.
So I think what I'm saying is, I don't have a firm plan for China. This is going to be something that we're going to play depending on how the market evolves. So, that's just where we are. And then as we build the plan for next year, it's entirely dependent on how this relaunch has gone. And what the China market response has been and how the market isn't behaving in general. So I think that's a bit too early to speak about today.
And then on the last questions almost it’s super well spotted and you are, right. And that one of the one of those smart updates that wasn't caught us just before the announcement. The 100 basis points that you have on slide 23 in the investor presentation is the right number. Not the 150 basis points, but I'm happy that you read our announcement in details. Well spotted.
Thank you. And just – and glad there's no change in guidance. Thank you.
Thank you, Thomas. [Operator Instructions] The next question will be a follow-up from the line of Kristian Godiksen from SEB. Please go ahead. Your line now will be unmuted.
Thank you. And so, I'm just wondering on the ASP, as well. What was the impact of the U.S. be more promotional? You mentioned the market is still very promotional or promotional sequentially it doesn't change. But what was the impact from you needing to be more promotional especially on the gifting occasions?
And then secondly, you mentioned that you postpone the expansion in Thailand and I am a bit curious to hear the reasons for that, if you are still fundamentally underlying on the outlook and why this has no impact on the CapEx guidance? And then maybe just thirdly, maybe if you could comment on what are your key concerns for the rest of the of the year? Thank you.
So there is no change in the quarter on the average ASP in the U.S. So, whilst, the winds are blowing hard around the corners of our business, we have not gone down and responded with any change actually in the promotional strategy of the business in the US. So that index is flat. What we've done when it comes to Thailand, of course, when - there were two reasons why we needed to expand the facilities.
One is from a business continuity standpoint. So that, we in case something happens, we have some alternatives to go to. And the other one was, of course, as part of the long range planning. We see that there's capacity that we will require and the decision we made was to increase with one extra site in Lampoon in Northern Thailand and an additional larger one in Vietnam, further on, and they were kind of sequence.
So, first Thailand, and secondly, Vietnam. What we've done, we've simply reversed the order of those two things. Obviously, when we started this whole exercise, we did not expect that the macro would be the way. So for the short-term we can manage the volume increase by, either moving ourself to three shifts, inside our own facilities and/or work a bit more with OEMs.
So the short-term capacity question we think we have covered. We still – our intent on continuing with Vietnam first, so that we will get more volume, as well as a business continuity plan. So, and then maybe the phasing of the CapEx. Anders you can talk about that, but.
Yeah, yeah, on the phasing of the CapEx, the guidance for the year, it was already in there. We made this decision to postpone it as late last year, I guess, most – but probably late last year, we decided to do that. So that is already in the budget guidance for this year. But in any case, it wouldn't have been a very big number for ‘23 still for Vietnam.
And then I think your last question was about the key concerns, yeah.
Anders is looking at me, I have more concerns. No, I think that the, the key concern is obviously the macro and the U.S. macro, which is kind of Q4 carried into Q1. Is that going to continue and that vein is going to go up or down?
I mean, that I think is, is the question on everybody's mind, to be honest. China is a concern, but more from the positive angle is how fast is it going to come back. So that, if it's slow, then it slows on the relaunch plot, if it's fasted and of course, we will accelerate accordingly. I think those will be the two main points on my mind. Europe, as somebody already pointed out, we are facing a softer baseline in the second half.
So, if everything goes to plan, I mean Europe will hold its own. So that's less of a concern in my book. It's probably more about the U.S. macro and speed of the China recovery. That would be top topics in my head.
And Alexander, if you were to focus on the ones where you have control, which would then be, with the macro I guess you can't really do anything about it.
Unfortunately, I can't do – I can pray, but it doesn't seem to help much. No, I mean, in the controllables, what, I mean, after the pandemic, of course we have seen that recruiting and retaining retail staff in particular in UK and US is it is a challenge for all of retail, not just Pandora. But of course that's a space where one really needs to kind of double down and figure out what the employee value proposition is in order to keep recruiting people.
I mean, we have a big fleet of stores which is constantly expanding and making sure that we retain the good talent that we have out there. That's probably a controllable. We're spending a fair amount of energy on that topic. And that hasn't, you can you can see it when you have a store where you have a good management of the store we have, people that have been around for a while. Those stores are simply put, just more productive than, than the other ones that that have the opposites.
And we can see then if we look at the franchise example, as I said, you know, they put a little bit less store hours in and quality of staff is pretty much the same. But it - and it's a war for talent in particularly in those two places. So that that's probably something, which is not a concern, but it's something we have to work hard to get to a decent place on.
Okay. Thanks a lot.
Thank you, Kristian. The next question will be from the line of Louise Singlehurst from Goldman Sachs. Please go ahead. Your line now will be unmuted.
Hi, good morning, Alexander and Anders. Thanks for taking my questions. I think we've got a huge amount of detail. So I'll keep it very brief. Just following up on the marketing spend the 4% decline. I think does that mean, if we think back to where you were on January, the first, that sales in the quarter were ahead of where you expected them to be? I suppose we're just trying to sense you versus your expectations are at the end of the period. And if so, which regions do you highlight at more US, but obviously Europe was strong.
And then a second follow-up was - there is always a little bit more cost flexibility for 2023. I know it's early days, but if there is Alexander, I’d be keen to hear where you'd like to prioritize the spend, if you have a little bit more in the wallet to spend on priorities for 2023. Where would you rank the first couple of areas? Thank you.
So, on the marketing spend, as I said that, if you stare just that at the face value number, then it's lower than prior year. But if you look at what I'm getting for my money's worth, it's pretty much the same outcome. So it's not a big topic for me as such. Your second question and I think is more interesting if I had some more spend looking at it from - there are two perspectives then you would have to apply. One is, strategically where should we put the money? And then there's a short-term aspect and of course, the world is never black and white. You live in the grey.
But if I kind of give you the pure answer, that would be to really deliver on the ambition we have to double our business in the US. So, I would put more money into the US and probably I would put more marketing spending in the US. I know my awareness levels are still lower than we're ideally like them to be. So that that is the first bucket of spend.
I’d probably then hope that China traffic returns and that would be the second place I would put the money, because we know we are you no way behind there when it comes to awareness of the brand. So that's that's the bucket. And then the third one would probably be, but this is not a practical answer, but if I had a magic wand, I would convert all of my stores in to EVOKE 2.0, because I know that this generates - because, when you are trying to create brand desire, it's not just about the advertising spots or what meets you when you go online.
It's also the physical experience. I think what our store staff delivers is fantastic. We know, we have a very competitive experience, but the stores need a refresh. There is no doubt in my mind. So, so once we are only doing, let's say 40 conversions or new stores on EVOKE 2.0 this year will definitely put down the foot to accelerate the next year. And, and my vision would be, if we can, this is a capacity question, if we can, then I would like to convert the entire network in the next three years, because I know this drives the brand experience.
And the brand desire, the value of the brand goes up. So those are probably the spend buckets. As I said, the last answer is not a very practical answer, but that that's where I would like to invest in a better experience. We are doing something, which is kind of, because it's going to take a little bit of time in many stores around the globe. So, we're doing a midways kind of touch up refresh if you may, but that’s far from the full experience of EVOKE 2.0. Then other than that, I think we're well resourced for the key bets of the year.
Great. Thank you.
Thank you, Louise. The next question will be a follow-up from the line of Michael Rasmussen from Danske Bank. Please go ahead. Your line now would be unmuted.
Yeah, thank you very much. Just a quick follow-up from me. Anders, this is probably a question for you. I noticed that your refunded liabilities were down by 21% year-on-year. And looking that as a share of last 12 months sales, I believe that the lowest number we've ever seen. Can you please explain that to me? Thank you.
Yeah, it's a good call, Michael. The bigger element of that is in the US. On North America I should probably rather say including Canada where we - last year have continued the journey of reducing the contractual opportunity for wholesale partners to return products. We've been on that journey for a couple of years and actually, and took another step - I think the last step last year. So now that structure in North America is aligned with the rest of the world. So that that's the bigger element offered.
And then, the way that we calculate the return liability, the refund liability is based on, what was actually, what do consumers – actually, this is our own stores. We then base that on what our consumers actually returning. And then that that percent of products being returned is simply going into the calculation and we are seeing. We've always seen no returns and it even come down a little bit further in our own stores. But the bigger piece is the wholesale part in North America.
Thank you very much, Anders.
Thank you, Michael. As there are no further questions at this moment, I would hand it back to the speakers for any closing remarks.
Well, thank you. It was a lively debate today. And as I said, we're very pleased with Q1. And once again, I invite you to put October 5 in your diaries which we will make sure it's worth your time. And on that note, thank you very much.