Pandora's (PNDZF) CEO Anders Colding Friis on Q2 2017 Results - Earnings Call Transcript

Pandora Australia Sale Pandora A/S (OTCPK:PNDZF) Q2 2017 Earnings Conference Call August 8, 2017 5:00 AM ET

Executives

Magnus Jensen - Investor Relations

Anders Colding Friis - Chief Executive Officer

Peter Vekslund - Chief Financial Officer

Analysts

Anne-Laure Bismuth - HSBC

Chiara Battistini - J. P. Morgan

Elena Mariani - Morgan Stanley

Thomas Chauvet - Citi

Kristian Godiksen - SEB

Michael Vitfell-Rasmussen - ABG

Lars Topholm - Carnegie

Hans Gregersen - Nordea

Piral Dadhania - RBC Capital Markets

Klaus Kehl - Nykredit Markets

Omar Saad - Evercore ISI

Francesca Di Pasquantonio - Deutsche Bank

Hans Gregersen - Nordea

Magnus Jensen

Thank you very much, and good morning, and welcome to the teleconference for PANDORA's Q2 2017 results. My name is Magnus Jensen from the PANDORA Investor Relations team and with me I have our CEO, Anders Colding Friis; and CFO, Peter Vekslund.

As per the agenda outlined on Slide 2, Anders will present the highlight for the quarter before Peter will talk you through the Q2 numbers in more detail. Following the presentation, we will be happy to take any questions you may have.

Before I hand over to Anders, I would like to point you attention to the disclaimer on Page 3. Anders, please.

Anders Colding Friis

Thank you very much, Magnus. Good morning to everyone and thank you for listening in on the call this morning. We are pleased to have produced results in line with our expectations, delivering double-digit top line growth and continued healthy profitability. In some markets, the business environment had been more challenging than anticipated; however, in other geographies, including China, Italy and Australia, we have seen a solid and strong performance throughout the first half of the year.

Pandora Charms Disney Now turning to the highlights. Revenue for the quarter was DKK4.8 billion, which is an increase of 12% compared to Q2 last year in both Danish kroner and in local currency. The growth was driven primarily by a solid performance in our owned retail business, including 10% like-for-like growth and supported by a very strong performance in Asia Pacific. The retail environment in the U.S. remains challenging, which was reflected in our performance in the U.S. for the quarter. However, we saw a significant improvement in the performance of our U.S. concept store network, which our owned retail network generated like-for-like growth of 8%. Reported revenue growth in the U.S. was flat also excluding one-offs, which included a positive impact from a reversal of a return provision of around DKK200 million.

All 5 product categories recorded growth for the quarter. Bracelets in particular improved compared to the latest quarters with reported growth of 19%. The profitability of our business continues to be solid, however, as flagged in February, the EBITDA margin in the first half came in lower than last year and EBITDA margins for the second quarter was 33.4% compared to 37.2% last year. The reduction was mainly related to the lower gross margin as well as an uptick in administrative expenses.

Free cash flow for the quarter was DKK556 million and is unchanged compared to last year. Cash flow came in as expected, and we'll pay out a quarterly dividend of DKK0.09 per share later this month. In total, PANDORA will return DKK 36 per share through dividend in 2017 or around DKK4 billion, an additional DKK 1.8 billion in share buyback.

Turning to Slide 5, we remain confident in our full year guidance for 2017 which is maintained. It is worth highlighting that we now expect a currency headwind for the full year of around 2% on revenue. Pandora Disney Charms 2018 In contrary, we expected a tailwind of 1 percentage point when we gave our initial guidance in connection with the full year results.

Looking at actual numbers, this amounts to a negative currency impact on revenue when comparing to our expectations back in February of around DKK700 million. Having delivered according to plan in the first half of the year, we expect an acceleration in the second half, which is driven by a tailwind of around DKK450 million related to store acquisitions as well as an easier comp and more newness in the product portfolio, including Disney in EMEA.

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