Welcome to Pandora interim financial report for the first quarter of 2020. For the first part of this call, all participants will be in a listen-only mode, and afterwards, there will be a question-and-answer session. Today, I am pleased to present Michael Bjergby, Vice President, Investor Relations, Treasury and Tax. Please begin your meeting.
Yes. Good morning, everyone, and welcome to the conference call for Pandora's Q1 results. Even though it's special times, then I am, as usually, sitting in the head office at Havneholmen in Copenhagen. There are not many employees at the office today. Most of them are sitting in this room. With me, I have our CEO, Alexander Lacik, CFO, Anders Boyer, and Christian and Mikkel from the IR team. There will be a Q&A session at the end of the call. As usual, please limit your questions to two at a time, and then get back into the queue for further questions. Please pay notice to the disclaimer on slide number two, and let me then hand over to Alexander, and let's get this show started with slide number three.
Thank you, Michael. It is indeed a quite peculiar situation. Pandora is impacted like all businesses, and our leadership agenda is very different from what I think we all had expected going into the year. When COVID-19 broke out in China, we immediately established a global crisis team to mitigate the impact and prepare scenarios for the times ahead. We were therefore quite well prepared when C-19 spread to the rest of the world. First and foremost, we have protected our employees, and we have fortunately seen very few cases in the company. We have also protected our consumers, and we have supported government actions across markets. From a financial perspective, we've taken a number of actions to strengthen our financial flexibility, both to sustain worst-case scenarios, but also, and importantly, to have muscle to navigate and adapt to potentially new reality on the other side of this situation.
Short term, we've focused on managing cost and protecting cash. We have taken such actions without compromising the long-term health of our company. At the same time, we're preparing for a strong commercial comeback when demand returns. COVID-19 may have a lasting impact on the face of retail. We're monitoring this closely. Where there's change, there's most certainly opportunity. Please move to slide four. COVID-19 came at a time where we were seriously harvesting the fruits of our hard labor from 2019. Our brand momentum continued to strengthen on the back of the brand relaunch in August, and the performance in January and February was better than what we had expected. Organic growth was positive and charms and bracelets had positive revenue growth. These are key milestones for our turnaround and tell us that Programme NOW is working.
Most of our stores around the globe have been closed over the past months. Our revenue today is, needless to say, seriously impacted. At the same time, the online business is firing on all cylinders, and this is a resilient channel that we can continue to push very hard. Please jump to slide six. On the chart to the left, you can see the positive organic growth of 1%. Notice that this was in a period where China was significantly down. We provide organic growth numbers due to the definition issues with like-for-like, but the picture is exactly the same when you look at sell-out. In Jan and Feb, group like-for-like was flat, excluding China. We're supporting government actions around the globe and have closed more than 80% of our stores during the month of March.
We've guaranteed eight weeks of base pay for our store staff. Yesterday we announced that this will be extended by two weeks to 1st of June. At the same time, we have decided that the top leaders, executive management, and the board take a temporary salary cut of 20%. Production has remained unaffected. Business continuity plans are in place if a curfew should occur. Our franchise partners are important for us and we strive to stay in close contact with them. We're trying to consult and help them during this crisis to the best of our ability, but we're generally not providing any financial support. I'll now hand over to Anders for some comments on stress test financials on slide seven.
Thank you, Alexander. Good morning, everyone. This slide number seven and the following slide are two somewhat unusual slides, but it's also two slides which are very important in a situation like this. Let me start out by saying that Pandora's financial starting point is strong, and a simple stress test will show that Pandora can absorb around, let's say, 50% revenue decline before reaching breakeven on profits and before we start to burn cash. That's a pretty privileged situation to be in for me and for the company, and that's what we have tried to illustrate in a simplistic way to the left of slide number seven. Despite this strong starting point, we are of course, taking serious action on cost and cash because we want to be prepared for the worst.
We have immediately reduced the media spending as stores started to close in markets around the world. We are with success renegotiating rent agreements on offices and stores with many of our landlords. We are also applying for government relief programs in many markets. On the cash side, we have suspended our share buyback. We have reduced our CapEx by around 40%, and we are managing working capital tightly, just to mention a few of our cash actions. These are all necessary actions to protect the financials and the health of the company. There's also actions which strengthen our position when demand return. Let's go to the next slide with a few more details on the funding and how we have prepared ourselves for a stress test scenario, on slide number eight.
We are in a highly uncertain environment, therefore, we have decided to arrange funding or cash for a stress test scenario. We have decided that we want to pay that insurance premium to be ready if a worst case or a stress test, as we've called it on this slide, should happen. In an environment like we are in right now, we need to work with different scenarios, different scenarios requires a different amount of cash and different amount of liquidity. With the funding package we are announcing today, we have enough cash, even if all stores remain closed for the rest of the year. That's what we have illustrated to the right on this slide eight, I'll get back to that in a bit more detail in just a minute.
First, I would like to walk you through our thinking about the different scenarios. In a base case, that's what we call scenario A in the pink box to the left here, we see a gradual opening of stores, just like what we saw in Germany back in late April. In this scenario, trading is improving slowly in the second quarter and further in the third quarter and lead to something that more or less is a normal fourth quarter. In that scenario, despite being heavily hit in the second quarter and also in the third quarter, we would actually not need additional funding.
However, if we're in a scenario B, where store openings are dragging out, some markets may need to close down again for a second time later on, and the fourth quarter is significantly impacted either by some markets being closed down or simply because consumer demand is lower, then additional bank funding was required. To cover that scenario B, we've done three things. First of all, we have negotiated a waiver of our loan covenant, that covenant which by the way, is our only bank funding covenant that has been raised to 4.25 net interest bank debt to EBITDA. Secondly, we have extended one of our credit facilities by approximately a year to May 2022. Thirdly, we have established a DKK 3 billion club deal with our core relationship banks, that is guaranteed partly by the Danish State Investment Fund, Vækstfonden.
In an absolute worst-case scenario, and that's scenario C, where there's a significant second virus outbreaks in the third quarter and the fourth quarter, and the majority of stores are closing again like what we have seen during April, the DKK 3 billion in additional bank funding would not be sufficient. To cover that scenario and to strengthen the capital structure during these challenging times, we decided to sell 8 million treasury shares, as you saw announced this morning. To summarize, when the sale of the treasury shares has been completed, we have secured enough liquidity even for the worst-case scenario C. Thereby, we also have the flexibility and the muscle to focus on a strong commercial comeback.
Going back to the illustration on the right here, we have tried to illustrate the liquidity situation in the worst-case scenario in a somewhat different way. Assuming that closing the majority of the stores lead to a 70% revenue drop, then we will be burning around DKK 1 billion in cash per quarter, or DKK 3 billion for the last three quarters of the year, plus restructuring costs and plus a bit additional funds being tied up in working capital because our working capital is still at a quite low level. That would take us too close to the available committed facilities after the repayment of the DKK 3.4 billion loan facilities that expires by year-end.
With the sale of the treasury shares, there's sufficient funding also in the worst-case scenario, and we will also have funding to sustain a continued material negative impact from the virus going into next year, 2021. With that, I will hand back to Alexander and update on Programme NOW.
Thank you, Anders. I'll now turn focus to the underlying business and our long-term initiatives. The execution of Programme NOW has definitely not stopped during the outbreak. We continue to progress and execute while obviously adapting to a new reality. When we entered the year, it was important for us to continue to build on the strong brand momentum since the brand relaunch in August. This was the key driver behind the positive performance in January and February. I also like to highlight that both new and base products were doing well, and even more importantly, charms and bracelets were the best performing product categories. This is critically important, as this is the core of Pandora, and it's the core of Programme NOW. We continue to drive the cost program to secure both fundamental sustainable savings and additional short-term savings to protect the business during this period.
We consider the commercial reset track in the bottom to be more or less completed. Inventory levels are healthy, promotional dependency is significantly reduced, and the product assortment is simpler and more productive. Please turn to the next page. This is one of the most important slides in the deck, as it talks to the brand health, which is actually at the heart of the whole turnaround program. The underlying brand momentum is clearly improving. That's evident from our traffic and like-for-like numbers, both in Q4 as well as January and February of this year. In the first quarter, we increased our media efforts with national TV campaigns running in most key markets. The marketing message was consistent, insight driven, and properly tested. We redirected spend to digital to drive traffic and conversion in our online stores. The key brand metrics paint the same picture.
Unaided brand awareness, unaided ad recall, and Google searches are all pointing in the right direction. The development is significant, solid, and something we will continue to nurture. Please turn to the next slide. The new online store was launched in August and has been key to our strong online growth. We have also increased our media spend on digital marketing, and consumers are responding positively. It should be noted that our online performance is predominantly driven by conversion rate in Q1. We see this as a result of, first, that our marketing content is much stronger and consumers are therefore browsing and engaging significantly more with the site. Secondly, that we have improved the back end of the online site, which leads to faster load times and higher quality product pictures. Faster load time is a key factor that has a clear correlation with conversion.
In March, quality of traffic was likely impacted by loyal consumers shifting offline to online, but it should be noted that neither growth nor conversion was significantly better in March than in the first two months of the year. Our online business has first really started to fire in April with triple digit growth rates. Please turn to slide 13 for a couple of words on China. As you already know, Pandora has built a quite large business in China in a very short time period. The brand has not been clearly positioned and has not been nurtured in the right way. We're taking necessary steps to prepare for a proper turnaround in China. We've been able to appoint a gentleman by the name of Jacques Roizen as the new general manager in China.
He joined in late March, has a very strong retail background, in-depth knowledge of the Chinese market, and an expert in data-driven growth. The strategy and timeline for the rest of the year can be split into three major milestones. The first one is to stabilize the Chinese business. There are low-hanging fruits to support the concept store performance and elevate the online business. The next milestone is to qualify our relaunch plan in China. This has to be data-driven and well tested. Finally, a relaunch of our plan by the end of the year. On the back of COVID-19, trading in China has been quite slow to recover. Most of our stores are open. We are starting to see like-for-like moving towards the level pre-COVID-19. In April, our Tmall business, which is essentially our e-commerce business in China, back to flat numbers.
Please turn to slide 14. As you're aware, we announced a strategic reorg on March 4. This is the foundation for our ambition to strengthen the organizational capability. Global headquarters come closer to local markets and consumers. This ensures that feedback from consumers can quickly fuel new concept creations. The reorganization will also reduce complexity and enable Pandora to execute with more speed and agility. As I've spoken about before, Pandora is moving into its 3.0 phase, where the objective is to become a world-class brand builder and a world-class omni-channel retailer. During these turbulent times, we've also gained critical competencies in key positions. Carla Liuni as Chief Marketing Officer, and Martino Pessina as Chief Commercial Officer, to name a few. I'm personally extremely excited about the potential of the new structure and the new executive team.
It's important for me to say that the reorganization was planned long before COVID-19 and is clearly not a cost exercise. This is a key investment in the long-term success of Pandora. That was my part of Programme NOW. I'll now hand it back to Anders.
Thank you, Alexander. Please go to slide 15. In light of COVID-19, it's clear that the cost focus has changed from structural and long-term cost reductions to also focus more on short-term savings here and now. The cost reset program under Programme NOW is still on track with run rate saving target of DKK 1.4 billion by the end of this year. We continue to progress well on all parameters, and not least the efficiency gains on the production sites in Thailand and achievements on our large IT transformation. In the quarter, the program now savings amounted to DKK 125 million, and that comes on top of the savings that were generated in Q1 of last year.
Just to avoid any misunderstandings, the numbers on this slide and the DKK 125 million number for the quarter does not include short-term savings that are being achieved as part of the COVID-19 situation. Please turn to slide 17 for a brief update on the Q1 performance. As already mentioned by Alexander a couple of times, that the performance was strong in Jan and Feb with the +1% organic growth, even with the virus outbreak in China already happening at that point in time. +1% might not sound impressive, but it is a major step considering where we are coming from, with negative organic growth and declining like-for-like for quite a long time. Impacted by COVID-19, we had 42% organic growth decline in March.
For the quarter, organic growth, therefore, ended at -14%, and the EBIT margin was just above 15%. Let's turn to the next slide for a bit more detail, first on the revenue. Here on slide 18, you have the usual revenue bridge. The like-for-like, including stores which are temporarily closed due to the virus, was -17%. That's clearly the driver of the revenue development compared to last year. The KPI that we're showing here is the sell-out growth, including the stores that are temporarily closed. It's the same as our normal like-for-like KPI, except that it includes the negative impact from the stores that are temporarily closed. I also want to highlight the third pink box from the left, and that shows a 2.5 percentage points impact from normalization of selling to wholesale.
It's quite an important number because it shows that the selling is normalizing and that our big efforts of cleaning up inventory during last year has come to an end. Please turn to slide 19 on the EBIT margin bridge. The profitability in the first quarter was clearly not where we wanted it to be, but given the circumstances and the impact from the virus, it was okay, it was solid, and shows how Pandora can absorb a pretty significant revenue decline and still generate profits. The main storyline is that our EBIT margin in the first quarter is heavily impacted by the large deleverage effect from the COVID-19 virus in the month of March.
If you look at the first two pink boxes to the left, the plus 2.5 and minus 2.5, they show you that the cost reductions were essentially all reinvested in the business to drive the top line. That's very much in line with what we saw during the quarters of 2019 as well. Let's turn to slide 20 and cash flow. I'll not go into too many details here, high level, you can say that the cash flow numbers are not as attractive for the specific quarter as we normally show. As expected, and as we communicated back when we released the full year numbers in February, the free cash flow in the quarter was impacted by a cash outflow from trade payables, and obviously also impacted by the COVID-19 impact on EBIT.
I just want again to put our working capital level in this quarter into perspective. At the Capital Markets Day now almost two years ago, it was mentioned that our working capital should be around 15% of revenue. Today, we are at 4.2, or by the end of March, we were at 4.2. That is a very low level and not sustainable. We can long term definitely do better than 15%. We still expect to see working capital increase during 2020, among others, due to an increase of inventories. Please turn to slide 22, and that's the last slide from me today and just about the guidance or the lack of guidance. On March 16, we withdrew our guidance as we no longer felt that it was meaningful. At that point in time, the uncertainty was simply too high.
Today, that's still the case, and we're not providing any update to the guidance for the year. Having said that, we are updating some of the building blocks to the guidance to reflect some of the cost and cash actions that we have taken. Restructuring costs have been lowered by 25%. CapEx has been lowered by 30%-40% compared to the original guidance. That's probably the first time in the history of Pandora, the net concept stores are expected to decrease a bit this year, going down by between 25 and 50 stores in 2020. As expected, the second quarter of this year has started out with revenues being down significantly in April, as the majority of the stores were temporarily closed.
Online has accelerated, as Alexander mentioned, delivering triple-digit growth in the month, obviously not enough to offset the loss coming from the physical stores being closed. We don't want to guide specifically for the quarter, you should expect that revenue will be down significantly in the second quarter and much more than in the first quarter. You should also expect to see that the bottom line for the second quarter will be negative. With that, I will hand forward to Alexander again.
Thank you, Anders. If you move to slide 23. I'm one year in the job, and this slide is a perfect reflection of reasons I came to Pandora, maybe with the exception of the Programme NOW point, which I think was part of my job description to try to drive the business. But it's good to put this slide up there to remind ourselves of the underlying strong foundations of Pandora. We have a business model with a very clear competitive advantage, and we're focusing on driving those even as we're kind of facing this crisis. If we now move to the next page, which is number 24. I'll conclude the presentation where we started it. Programme NOW is on track. I think the performance in January and February is a testimony to the commercial initiatives bearing fruit.
The underlying brand momentum is solid, as reflected in the brand metrics. We see improved traffic and online channel to really be on fire. We're financially resilient, and the strength of our balance sheet is key. Finally, and very importantly, we've been preparing for a strong commercial comeback. We've already established the financial muscle and the flexibility to focus on life after C-19. With those remarks, we'll now open for the Q&A session. Operator, please.
Thank you. If you would like to ask a question, please press zero one on your telephone keypad. If you wish to withdraw a question, you may do so by pressing zero two to cancel. That is zero one if you would like to ask a question. Our first question is from Magnus Jensen from SEB. Please go ahead. Your line is open.
Hi, guys. It's Magnus from SEB. Thank you for taking my questions. First of all, on the COVID-19 and the impact on your business is clearly pretty big. How much is it a setback in terms of what you've already done? How much are you set back in terms of the marketing efforts you've been doing and the nice numbers you've been getting in terms of awareness and the likes? How large is the setback, and do you need to start all over on the other side? Second question goes to your store network. Independent jewelers are clearly under pressure due to COVID-19. Is there a risk that when the market starts to open up that you'll lose significant numbers of multi-brand retailers? The same for concept store franchisees. Do you have a sense of how well they're getting through this crisis?
That was my two questions for now. Thank you.
On your first question on how large the setback is, if we take Europe, we've been in this for 6 weeks. We normally get monthly trackers, so we have one dipstick in March, and that's actually before COVID happened. From that metric, we wouldn't see anything. I've seen some data from consumer sentiment in China, which actually wasn't too bad. Of course, it came down a little bit in the midst of February, but then it seemed to have bumped back. I think the answer to the question is going to be dependent on how long the societies are in a lockdown mode, because the longer we are locked down, of course, the less we invest in the communication and the less people walk by our stores. Then you would get some kind of impact.
So far, I would say it's way too early to make any strong statements. I think what's encouraging is if we look at Germany, which reopened just eight days ago, traffic there rebounded at a much faster clip than what we saw in China, for instance. I think it's very difficult right now to say that we've seen any material impact. If markets reopen now during the month of May, which is kind of what we are expecting, we'll come very strong out of the gates in order to capitalize on the momentum we built towards the last couple of months before COVID hit us. Maybe on the independent retailers, I think it's fair to assume that many retailers with low margins are going to suffer a lot through this.
The situation is going to vary country by country, depending also on what the local governments are doing to support them. We've had, I would say, in particular, if I turn to the latter part of your question on the franchisees, where U.K. is big in our portfolio as well as U.S., I think the governments there have provided quite strong support packages. We don't expect that the franchise partners have big overhead costs like we do. Frankly speaking, if this crisis blows over, at least this first wave blows over reasonably soon, then we have not yet seen any massive issues come our way. Of course, the longer this thing carries on, the more we're all exposed, I think is the long and short of that answer. Nothing that we've experienced so far.
Our next question is from Lars Topholm from Carnegie. Please go ahead. Your line is open.
Yes. Congrats with the good and encouraging looking Q1. I have two questions also. Clearly numbers are going to be blurred because of coronavirus. Maybe a tricky question to answer, how should we judge your Q2? Clearly, top line is going to be down. Earnings are probably going to be negative, how should we judge your relative success in that scenario? What I am of course referring to is that in Q2 2019, there were some early positive signs in U.K. and Italy, and then Q3, those signs looked reversed. I'm just wondering, maybe from an internal perspective, how you would judge your own success. Question number two, your sort of constant product renewal might become somewhat challenged since many stores are closed. For example, I would assume some stores are going to miss out on Mother's Day.
How do you manage innovation from that perspective? Are you going to hold back on certain product launches? Does that mean we will have a big splash of new products at the end of COVID-19? If stores subscribe to purchasing Mother's Day and have to stay closed, will you take it back, or how do you manage that whole product situation? Thank you.
On your first, maybe we will split this one between Anders and myself. In reality, the going in scenario we had assumed was all physical stores closed throughout all of Q2, and essentially only trading on e-commerce and trading in China. Of course, we learned a few weeks back that the continental Europe in particular, the governments want to start reopening the economies and therefore, those numbers are going to be a little bit better. I think Q2 is just one we want to put behind us, to be honest. I'm not sure performance metrics there is. Making sure we don't bleed cash, and holding on to kind of the wallet in a sense, I think is the success. The question is more how quickly we can get the markets to come back. I'm probably looking more into Q3 to be perfectly honest with you.
I'll let Anders answer this and maybe I can take the innovation one as well while I'm at it. When this situation hit, we immediately cut back on the innovation pipe, not in terms of volume on the big bets. Those we've kept intact. What we've done is we've cleaned up because as always, you have some small stuff hanging around in your pipeline, so we just stopped those. We'll probably have fewer, bigger and hopefully better. That was one aspect. The other one was, we essentially pivoted to a view that most of this volume is going to be online, so we haven't flooded the stores with too much inventory of the new. You remember also last year we did a cleanup of the assortment. We went from 1,800 to 1,200 SKUs. That's kind of coming through.
We also rebalanced the focus between what we label as the core assortment versus the new. Now I have a better balance because if I am over inventoried, overstocked on the core, it doesn't really matter too much because I will sell this at one point. If I have highly seasonal type of assortment, yes, then that's more a challenge. If I'm in the apparel industry and I have a summer T-shirt, yeah, I probably need to sell it in the summer because in the winter nobody's going to be asking for it. We don't have that issue to a large extent in our portfolio. That's something which I think we've been managing quite well. Of course, it's a bit of a guesswork because you never know when the stores are going to reopen.
From an inventory coverage standpoint, I think we have roughly 25, 26 weeks of coverage based on normal demand sitting out in the supply chain, which also takes care of one of the questions, which I'm sure is going to come later around what happens if we have problems with the production facilities in Thailand. We can sustain sales for quite some time before we run out of inventory. Maybe Anders some views on Q2 success criteria.
Yeah. Hi, Lars. It's Anders. It's a good question because there's no concept of business as usual in a situation like this. As we speak, one of the things that we follow very closely, with even more interest than normal, is announcements coming out from other global brands, global retail companies, and see how they are performing, what they are saying, and in fact, also what they're doing on cost, cash and other types of actions. We are following that very closely. That's kind of a step one to when a market opens up, how are other branded companies performing? Obviously, that's a piecemeal type of data, but I think that's one way to look at whether we are performing okay or not.
Hopefully step two would be that, once markets have been open for a while, then you get back to something that's a little bit more normal. You can hopefully compare to how we were trading before the virus broke out. Hopefully, we'll get to that point at a later time during the year. We're definitely not there yet. For now, I think looking at what other companies are announcing is a good starting point. Obviously, in a situation like this, you also would like to do some internal benchmarking and see we saw Germany opening up a bit couple of weeks ago, and then when next market opens up, that kind of becomes a benchmark. Obviously countries have been very differently hit, but still that can also provide a benchmark on, at least within the company, how individual markets are performing.
Perfect. Thank you very much, guys. Thanks for taking my questions.
Our next question is from Silky Agarwal from Citi. Please go ahead. Your line is open.
Good morning. Hi, everyone. Silky Agarwal from Citi. I have two questions, please. The first one is on the marketing investments. How do you see marketing investments evolve in the next few quarters? How much are you allocating to digital versus traditional media, especially in the fourth quarter? What are your plans on marketing there? Two, on gross margin evolution. You had a very strong increase in first quarter, and it seems that you are gaining manufacturing efficiencies as you had seen last year. What are you doing in terms to sustain your gross margins? Do you think gross margin could take a temporary hit in the second half, as you probably might have to increase promotions to drive sales or maybe clear some of the excess inventories that Anders was mentioning? Thank you.
Hi, Silky. On your first question, when the COVID started, we essentially removed most of our, what we would label as traditional above the line media, TV, print, out of home, et cetera. We kept the portion that we somehow can attribute to the e-commerce sales. For as long as we don't have a sufficient amount of stores reopened, I'm not going to be burning cash to closed stores. We will keep pushing the digital spend and social spend, because we still want to remain top of mind in consumers. We don't believe in a scenario where you go completely black. We would not provide you specific splits because, in fact, they keep changing all the time. This is quite a kind of a flexible environment.
What we're considering as well, if and when we have sufficient amount of stores reopened, buying media, TV media and those traditional medias, this is quite a lucrative opportunity to go and negotiate quite interesting media rates. That's going to be part of our game plan, because again, as I said, we want to come strong out of the gates. Strong out of the gates means to be sharp at point of sales, but also to invest in the brand equity messaging. We're not just going to be reliant on promotions like I've seen a few other players doing, in particular in China. That's not the game we're going to play.
Hi, Silky.
Do you have a promotion going on?
No. You know that last year we went through this big promo detox. I'm not going to throw that out the window. Fundamentally, we will stick to our guns and keep to the base plan in terms of promotions that we had in store. That's give or take what we're going to do.
Thank you.
If I should give a comment on the gross margin, when you look at the scenarios A, B, C that we outlined on slide eight, I think it was. The way to think about it high level is flattish gross margins. By far the most of our cost is variable, so there's not that much leverage, de-leverage effect. There's a little bit, but it's not material from that perspective. When we look ahead, then we are thinking sort of flattish gross margins for the year. Of course, there continues being more and more cost reductions coming in on the initiatives that we're doing as part of the cost reset program. That helps a bit. Currently, you can also argue there's a bit of tailwind from channel mix, given that basically all of the revenue that's coming in as we speak is from our own channels.
There's a little bit of support from that.
Thank you.
Our next question is from Chiara Battistini from J.P. Morgan. Please go ahead, your line is open.
Good morning. Thank you for taking my questions. The first one would be on how to think about the sell in versus the sell out. Is it fair to assume that in Q2, as long as the stores are closed, then the sell-in will be effectively zero, and therefore we should not look at the sell-out progression as a leading indicator also in Q2 for the sell-in also? The second question is on your cash and the excess liquidity. Would you consider redistribute the excess liquidity from the ABB if the worst case was not to materialize, and therefore from here, we would just see a sequential opening of the stores and things progressively returning to normal? Thank you.
Hi, Chiara. It's Anders here. With the first question, sell-in, sell-out. I think the important starting point is that inventories across partners were getting into 2020 and in Q1 is quite healthy. From that starting point, of course, there's some inventories among the partners they can eat off during the second quarter, but there's a limit to it. I think to your point, I think it's safe to assume that in an environment like this, you are extra careful on cash, and thereby our sell in could be lower than sell out during the second quarter. I think that's a reasonable assumption and also what we have seen during the month of April. On the proceeds from the ABB.
Yeah, I hope both for the world and society from a bigger perspective and for Pandora's sake, that we're not getting into scenario C, meaning a scenario where there will be second and third, maybe lockdowns of major markets and major additional virus outbreaks. If that does not happen, then yeah, step number one is that we wouldn't need the proceed from the ABB. Secondly, what we would then do, we would sit down and look at our capital structure policy, where are we within that? If we are within the range of 0.5-1.5 times leverage, then we would distribute whatever is excess of that. Obviously it would mean, as a starting point, that would be give and take DKK 1.5 billion, DKK 1.6 something billion more to distribute from, than there would not have been.
Let's cross that bridge once we get there, and if it ended up that we didn't need that additional funding.
Great. Thank you very much. Just if I can follow up on the sell-in question, is it fair to assume right now that the sell-in to the stores that are closed is actually zero right now?
Yeah. That's true. Yeah. That's the case. Yeah.
Yeah. Perfect. Thank you very much.
Our next question is from Elena Mariani from Morgan Stanley. Please go ahead. Your line is open.
Hi. Good morning, Alexander and Anders. A couple of questions from me as well. The first one, I just wanted to go back to your trends in January. You've experienced positive like-for-like, across the several countries, excluding China, probably. What do you think was the key driver there? How was traffic versus conversion tracking versus last year? Was there any specific promotions? Any additional details you could provide? I know you've disclosed already quite a lot about it, if you could help us understand whether that start of the year perhaps would've been sustainable excluding COVID-19. Question number one. Question number two, it's more like a general question on your view on the shape of recovery, given that you've run several scenarios.
I'm not asking about guidance, but perhaps your view in general about how quickly things could recover, assuming that your base case scenario plays out. In your view, do you think that it would be feasible in 2021 to go back to the same sales and margins of 2019? Or do you feel as a management team that given the global situation and the potential global recession, it might take you a little bit longer for consumers to regain sentiment? I know it's difficult to answer, but based on your base case scenario, do you think this would be feasible? Thank you.
Okay, let's take the first one. The key drivers in Jan, Feb, I think you can summarize in a simple sentence, is that that's the core of Programme NOW at work. It's not just one isolated aspect. I think it's the whole program is starting to work. The reason I can say that is because we get those good results across the board. It's not just one country. Of course, the brand has different maturity and different starting points in various places around the globe. That's actually the comforting thing about it. From a promotional standpoint, we had a similar promo schedule as prior years. There was no more than last year. We didn't buy volume in Jan, Feb to promote this. There was a tad more media investment.
I think over Jan, Feb, we spent DKK 100 million more than we did in the same period last year, but that was to carry the momentum from Q4 that's kind of starting to build. You don't turn a brand that's kind of been out of fashion, let's say, for a while on a dime. This is something that you need to consistently communicate and consistently be top of mind of people, and at one point, the penny drops. I think that's kind of what we saw happening to large degree in Jan, Feb.
In essence, it's the componentry inside Programme NOW that's working hard. The good thing about that is we know what those things are, and we can repeat it. Of course, it's up to us to prove that we can repeat it, and unfortunately, COVID came a little bit in the middle. We're very confident that we know what the right levers are. On your second question, I just wish I had a strong insight on that because I wouldn't be doing this job, then I would be trading in the stock market and probably make a fortune, but I'm not. I don't know. This is an impossible question to ask.
What we can talk about is what we've seen in China, and what we can talk about is what we've seen in Germany, because those are the two only yardsticks which somehow could give us a sense of direction. China has been quite slow to recover, in particular, when we talk about the physical traffic. Online has recovered quicker. If you look at Tmall, total Tmall traffic, I think, was already at par with last year, a month ago. For us, it took a little bit longer, and our business in March was down 30-odd percent on Tmall, and now we're back to flat. Whereas in the stores, this is still slow going. I think we're still down 30% or thereabout in terms of traffic versus prior year. That's now what? Eight, nine weeks post, let's say, the reopening of the economy.
Germany's been open for eight days and traffic has already rebounded. We're down, what? 60%, 40% on average. We're throwing numbers around here, but what's happened in Germany is that they are rebounding much, much quicker than China. Now pick your swim lane, and I don't think any of those necessarily is going to be true for when U.S. reopens or when Italy and Spain and France, for that matter, or even U.K. I think each country will have a different trajectory on how fast it comes back. I think those two might be, I stress, the outliers. Really fast recovery and a really slow recovery, and then probably we'll have a couple of countries in the middle.
In our A scenario, which we underspoke to, the view was a sequential recovery over the months to come and Q4 kind of being similar to last year. That's in our kind of base scenario. You could also have an argument that, well, that's nice and up until Q3, and then we get a rebound of COVID-19, which is not unusual within these type of pandemics if we go back into the history books. Therefore, we could argue that Q4 is actually going to be similar to the previous quarters, and that's our B scenario, if you may. Then the C scenario is that this thing continues into 2021. On the basis of those, that's kind of how we built our financial plan, but also our commercial plan.
I know it's not answering your question, but unfortunately, I don't have any better answer than that.
No, this is great. Thank you. It's one of the best I've had so far, so thanks a lot.
Our next question is from Fredrik Ivarsson from ABG. Please go ahead, your line is open.
Thank you, operator. Thank you for the presentation, guys. Most of my questions already been asked, but one on China and the turnaround there. You mentioned a few low-hanging fruits, when it comes to the improving concept store performance, I guess. Just wondering if you can elaborate a little bit on that. What are those low-hanging fruits?
Think of it like this. The Chinese business has actually not been well-performing, if you look at it from a like-for-like standpoint for quite a long period of time, in fact. It's been kind of on a declining trend. Last year, I believe it was in August when the Chinese Valentine's Day happened, and the team had forecasted a very different outcome in general, which they didn't deliver. I think what happened then is, there was a fair few people in that organization that lost a little bit of faith in that we can actually turn this ship around. Now we put new management in there, and of course, somebody comes in with a fresh view, the couple of other key people that have just entered the business.
Of course, they will see some, we refer to them as low-hanging fruit, but they're more operational in nature. If you kind of look at the China case, then you say, I have 30% of my opportunities, operational issues, and 70% is kind of these structural issues that we've been speaking about for a while. I think his initial view was, well, on the operational side, there's plenty of things which we can do, to things like incentive programs, things like what we sell, how we sell, the merchandising, similar to what we've done in the rest of the world, where we rebalance the focus from just focusing on new items to core items. That rebalance has not yet taken place in China, so that's what we're fixing there. That's yielded very strong results outside of China.
The refocusing on making sure that the opening price points are clear so that we really drive home the idea of this being affordable and desirable jewelry to sell. That's kind of one tangible which we've learned elsewhere that it works. I can go on for a while. There's lots of operational mechanics that are found specifically in China, but also what we found and learned outside of China. It's quite normal when a new leader comes in that they view the world slightly differently, in a particular business that's been in troubled water. They will put their mark on it from day one, which is what Jack is doing.
Thanks. A short follow-up on Germany, because I didn't really catch what you said there. Can you just repeat what have you seen in terms of improved store traffic since you opened up in Germany? And also, if you can confirm that 100% of your stores in that country is currently open.
Not 100%. I think there's still a few, but I think 80% or 90% of them are. I'm just trying to look up the most recent. 25 out of 40. 25 out of 140. Yeah. Most stores are reopened. What you see is, and there's a bit of context which one needs to bear in mind, there are specific regulations in the various countries on the social distancing. You can only have a certain amount of customers per sq m, or there needs to be a particular distance between the people in a store. What you see is that it ends up with having quite a few customers inside the stores and people waiting outside.
What we see is whilst the traffic is, let's say, 50%, we see that conversion rate is much, much higher because the people that are in fact queuing up to come in are very committed to do a purchase act. We see that our conversion rates are skyrocketing. All the other metrics are actually in a very good place in terms of average order size, basket size, units per transactions, et cetera. Traffic from memory, and it changes by the day. Essentially, traffic was in the first week was down something like 50%, from memory. It depends a little bit on first few days, there was a delta between rural or let's say, city stores and mall stores, but that's now converged in the last two or three days. That seems to kind of be more or less the same.
It's high quality traffic, so the conversion rate is fine. No, absolutely. Yeah. Yeah. We've seen that. We see the online as well. In fact, our volume of traffic is going up, but we see less browsers and more committed users. In fact, on online, I have had weeks where my conversion rate in, I think it was in the U.K., was almost double-digit, 8%, 9% conversion rate. In the past was two to three percentage points in the U.K. Conversion rate has definitely moved up, and we see this across the globe. It's a more committed buyer coming to Pandora, which I would attribute to all the efforts we have done behind Programme NOW. We're getting a more committed shopper to come our way.
That's super clear. Thank you, guys, and best of luck for the rest of the year.
Thank you.
Our next question is from Claus Keuls from New Credit. Please go ahead. Your line is open.
Yes, hello. Two questions from my side as well. Maybe I missed some of it because I was in another conference call earlier, so sorry about that. You had an organic growth of 1% in January and February. Just to be clear, is that including China? Also, could you translate that into a like-for-like in January and February? Secondly, you haven't really talked about the short-term cost initiatives. Could you try to talk a little bit about what you're doing in order to keep your cost down on at least for the coming quarters? That would be my two questions. Thank you.
Yeah, thank you. Thank you, Claus. It's Anders here. On the organic growth of +1%, yeah, that's the full group. The total reported revenue as it will be sitting in the books. For the first two months of the year, like-for-like was also positive, when we take out China. China was down 60%, something like that, like-for-like for the first two months, and with some 80% down in the month of February specifically. Excluding China, like-for-like was also positive for January and February, with all the markets that we are reporting on externally being in positive except for China. Also Australia just being below zero, but the other markets actually being in plus.
It was a quite uniform and broad-based good start of the year that made us smile a bit until the virus hit Europe and then Americas. On the other piece, on the cost side. When the virus actually already before it came to Europe, while it was only in Asia, we immediately decided to sit down a crisis committee meeting every morning and organized ourselves around a number of work streams where one of them was cost and cash, obviously. On the cost side, we have been taking a broad-based view across all cost categories to see how much we could take out without jeopardizing.
our ability to participate when demand returns. As you will see, when we get a report on the second quarter numbers, that will be visible that we're taking quite tough stand on the cost side. If you look at the rule of thumb that we have previously talked about when business is more normal, business as usual, we have normally said, well, think about the Pandora business in a way that when revenue drops by one percentage point, then it hits the EBIT margin by 40 basis points. Indirectly when we say that, then it means that if revenue goes down by DKK 100, DKK 100, then there's an OpEx reduction of DKK 10. 10% of the revenue change. Obviously, when you have a hit like what we see right now, you can do more than that.
You should more think about that the level of cost that we can take out is around, let's say, 20-ish% of the revenue change. If revenue was down by 1 billion compared to last year, we would be able to take out cost with short-term measures of around DKK 200 million. That's very broad terms.
OpEx cost?
Yeah. OpEx cost by around DKK 200 million. That's very roughly how to think about it. The bigger buckets in that OpEx reductions are rental reliefs. Temporary rental reliefs is one big bucket, and a second big bucket is media spending, when market got into a lockdown, we've just suspended all media spending, at least media spending driving traffic to offline stores. Fortunately, we can do that with actually quite very short notice. Traveling, needless to say, is very, very close to zero as we speak. That also helps. I think a fourth bucket, Boris, to mention is government support programs around the world. That is also very, very different programs being in place in different markets. Obviously also something that supports our ability to reduce cost during a difficult time like this.
Okay. Just to clarify, does that mean that you will have a drop-through margin of 30% now? Meaning that if your revenue go down by DKK 100, then your EBIT will only go down by DKK 30.
In the old sort of the rule of thumb that we have normally given where we say 1% change on the top line hits the EBIT margin by 40 basis points, there, the fall-through EBIT margin is implicitly 65%, 70%, something like that. We are saying that now if revenue is down by one percentage point, we can take out OpEx by 20% of the absolute change in revenue, then the fall-through to the bottom line is more like 50%, 55%.
Okay. I'll have to look further into that.
Yeah.
Thank you.
We can go through the numbers, Michael or myself, and just show how it fits together.
Let's do it.
Yes. Excellent. Thank you.
Our next question is from Piral Dadhania from RBC. Please go ahead, your line is open.
Thanks. Morning, everyone. If I could maybe just ask a question on the e-commerce growth rate that you're enjoying in April. Could you perhaps help us to explain if there's any specific factors driving that triple digit growth? How much of that do you believe will be sustainable versus temporary? Within that, is there anything you'd want to call out with respect to the potential demographic mix in terms of new versus existing customers? Are you recruiting new customers during this period of lockdown, which would be very encouraging? Just maybe following on from that, I think you mentioned that the concept store count is expected to decrease this year for the first time in Pandora's history.
Given the lockdown and the strength in e-commerce, is there a case to be made that you may evaluate the overall store network on a more sort of longer term structural basis if you're able to capture incremental demand online and serve your customers from that channel, which I imagine is margin accretive? Are you thinking about the longer term store network strategy as well? Thank you very much.
Hi. On e-com. I think the first thing to say is that post the brand relaunch, we have seen increase in growth rate on the e-commerce business. I think we're doing a lot of things right on the back end of this from a tech stack standpoint, as well as the consumer-facing touchpoint. We know, because we track this, that consumers are much more satisfied with the experience that we're providing. Page loads are much quicker, and which we know drive conversion, but also the kind of narrative and the type of products that we sell there. All of that will go into the
First bucket, which was the 30% growth rate we were enjoying in the first three months. As shops closed, that 30% became 300%. I think that's purely a shift of people that would normally go into a shop. Shop is closed, can I find it somewhere else? Yes, I go online. How much of that is going to remain once stores reopen? We can only guess. I have no idea, to be honest with you. The interesting factoid, but it's based on seven days of trading, is that in Germany, the growth rate on e-com didn't slow down when the stores reopened. I'm not sure that that's going to sustain itself. It's probably fair to say that a portion of those consumers will find that it was a quite decent experience and they'll stay online. We're ready to take them wherever they want to shop.
Being an omni-channel retailer, that's kind of the nature of the game. From an accretion standpoint, whether they buy online or buy in our stores, there is no difference if you would do a vertical P&L look at the very bottom line when you kind of allocated costs out. That actually doesn't matter. Of course, there is some margin accretion in our end when people would not buy through a third party and buy through our own channel. That goes without saying. There were no funnies. There were no funny activities to drive those type of growth rates. This is good business. We see this through the engagement rate. We see that this is propelled both by traffic and conversion rate.
I think we are getting an equal split of new versus existing. The only data point I had was from Jan, Feb, where we saw quite a lot of influx of new overall to Pandora, but that was kind of split more or less even between on and offline. No major shift there yet. On your question on concept stores. First of all, the reason we are now guiding for a decline is you need to decompose that. On one hand, we already had in our base plan that we would shut a few stores. On top of that, to balance out to a flat, which I think we were guiding towards a more or less a flat store fleet or space this year, was because we anticipated actually building more stores in LATAM and in China.
Those two we have postponed, which is probably not going to happen in this year given the kind of uncertainties around COVID. That's why you get a net negative on the square meters, let's say. It's not that we have decided to close more stores because of COVID. We haven't gotten to that place yet. The speculation of will we be shutting stores because we have moved that traffic to e-com is way too early to say. We can make some models, frankly speaking, if things go back to normal, as it were, in the next month or two, then I don't anticipate any change of the structure. If this lockdown continues for another couple of months and even, worst case, comes back in Q4, yes, of course we'll have to look at it, we know more.
Let's not forget that we're, what, six weeks into the European and U.S. lockdown, as it were. In China we're a little bit past that point. I'm sure we'll come back on this point when we have a better view. That would be my thinking today.
Brilliant. Thank you.
Our next question is from Magnus Jonsson from SEB. Please go ahead. Your line is open.
Hi, this is Magnus again. Just two very quick question from my side. You reduced restructuring costs around DKK 300 million. Are they postponed to next year then? Are they just not going to happen? The second one is, could you tell what the like-for-like on charms was in January and February? That's my question. Thank you.
Magnus, it's Anders here on the first question on the restructuring cost. I think you should see that change as a permanent change. We don't see, for any sort of big practical purposes, Programme NOW extending into next year. It's a real reduction.
Yeah, Magnus, on your second question, for January, February, we were slightly positive on charms and bracelets. I'll leave it at that.
That's very clear. Thank you, guys.
Our next question is from Antoine Belge from HSBC. Please go ahead. Your line is open.
Yes. Hi, it's Antoine Belge at HSBC. Two question actually. One is a follow-up on the previous one. On the DKK 1 billion restructuring now, what's the split between gross margin and OpEx? The second question relates to the improvement that you saw in the first two months of the year. Can you name maybe a few brand attributes that, in your view, improved? Those improvements, which ones do you think are really going to stick when stores do reopen? Thank you.
Antoine, it's Anders on the first question. For the quarter, DKK 86 million of the 435 restructuring costs were sitting in gross profit and the remaining in OpEx. 86 of 435 was COGS.
Yeah. Hi.
Yeah.
On your second question, as I mentioned in the presentation, the things we keep a close eye on is traffic, conversion rate, which are kind of outcome measures. We also look at the unaided brand and ad recall and also then Google Search. Those are the kind of, let's say, five metrics that we keep a close eye on, and that's also the type of stuff that we share with you in those calls because that, since the brand relaunched, these metrics have all been moving in the right direction. It seems like what we are showing to consumers stick and we are able to repeat that over time, since September of last year. That would be how I would view that question.
Yeah. Maybe just on this, in terms of the price positioning of the brand and also the ability of the brand to sell new products beyond charms, are you noticing anything interesting there?
What I've said is, in order to stabilize Pandora, we needed to get the focus squarely back on charms and bracelet, because that is 70% of our model. If I don't have this under wraps, then frankly, it doesn't matter if I sell a couple of rings left, right, and center. The focus has been very pointed on charms and bracelets so far. That seems to now be yielding. When we have put a couple of more quarters under the belt, we ensure that this is a sustainable track, then we are looking into, of course, we are already looking into the other ones, but I'm not allowing them on the table yet because that will just distract us. I need to have the core firing very hard before we enter into other adventures.
I'm sorry to come back on the split between COGS and OpEx. That was actually for the DKK 1 billion for the year rather than for the first quarter?
Yeah.
I get.
For the full year, the split will still be that OpEx is by far the majority of the DKK 1 billion, and probably even more skewed towards OpEx, for the remaining part of the year. Even smaller COGS part for the second, third, and fourth quarter.
Thank you very much.
Our next question is from Louise Singlehurst from Goldman Sachs. Please go ahead, your line's open.
Hi, Alexander and Anders. Thank you very much for the clear commentary so far. Just a quick one from me in terms of going back again about the inventory and how the dialogue between obviously your teams and the third-party retailers, how that's changing in the current circumstances. Just in terms of additional help that you'll need to provide to the retailers about new payables, any slow-moving stock to take back. I know you've done a lot of work over the past 12, 18 months to remove some of the slow-moving stock out of the channel, so that should be a lot cleaner. Just tell us a little bit more flavor about the current environment and those dialogues that you're having with third parties to reduce the risk of discounting. Thank you.
Well, I think, we did clean up a lot of the inventory last year, to say the least. We spent, what, six, DKK 700 million on that. Not just the quantity, but also the quality of their inventory. As I mentioned earlier on the call, we've tried to rebalance not only focusing on new, but actually trying to drive our top sellers harder, which means that you get an inventory which is fresher and can sustain itself a little bit longer. That is very important as you go into this. Of course, they're not placing any orders as we speak. We don't think that, neither our own stores or our franchise partners, at a global view, are overstocked at this point in time.
I think where the question mark will come up is, as we kind of eventually get out of this crisis, there's no doubt that a lot of people out there are going to be a little bit cash-strapped. That's the expectation we have. Of course, then that's going to manifest itself into conversations around them being able to buy the new innovation or new products that we're going to bring on the market. Before we open up our wallet, we are going to ensure that they exhaust all the funding facilities that they have available to themselves because, of course, we are not a banking facility, as you very well know. We are interested in protecting the joint business that we have with them. We will have to make sure that they've exhausted all opportunities before we entertain a conversation on terms or things like that.
They're a freestanding business. That's the whole idea of having a franchise partnership. That's probably where we get to that. Those conversations aren't very sharp at this point in time because
We're all kind of still in a lockdown mode. I'm sure that over the next quarter, as things start to reopen, that we will engage in those conversations. We've been having some dialogue with a few of our partners in terms of how we prepare ourselves for the comeback and ideas on how we can kind of drive this engine commercially. Those are kind of more, let's call it, leaning in type of conversations versus just having the financial conversation. That one will come. There's no doubt in my mind.
Great. Thank you.
Our next question is from Chiara Battistini from J.P. Morgan. Please go ahead. Your line is open.
Hello. Hi. Sorry, a very quick one, a follow-up. I saw you noted in the press release that you have not applied for government subsidies that will lead to any restriction on the cash returns. On the presentation, you actually mentioned that you applied for support on the government stimulus packages. I was just wondering if you could clarify the difference between the two statements, please. Thank you.
Yeah. We have definitely applied for government subsidies around the world. The comment was about that where the restrictions comes up would be if you apply for the government support programs in Denmark, being a company based in Denmark or listed in Denmark. There we have not yet applied for government support. The dividend restrictions on the Danish government support schemes only applies if you are getting support above a certain level of your cost.
That's basically a regional difference. The only country where you haven't applied this is Denmark. You've applied, for example, in France and Germany?
Yeah. I think France and Germany, I know, and I think we have applied in most countries around the world. I know of quite many of them, but obviously, at least from a retail perspective, our activity in Denmark is very minimal.
Just recall that we have eight shops or stores in Denmark. The government support that we could apply for here is less relevant. Yeah.
Wonderful. Thank you very much for the clarification.
Our next question is from Poul Jensen from Danske Bank. Please go ahead. Your line is open.
Yes. Thank you. Thank you for taking the question. Just a follow-up on the social distancing. If we look into the fourth quarter where a large part of revenue is coming from December, and that you have rather small shops, do you believe that there will be some kind of a capacity limitation on your Christmas sales if we assume that we will continue to have about one or two meters between each other in the store? Thank you.
This is a brilliant question, because you do the math. Average store size, you put some furniture in there, and you fill up these stores very quickly and would kind of be in breach of either social distancing rules. We actually have a task force that's already working on finding solutions, which could be technology-based, which could be retail-based, and a mixture of the two. Hopefully we have what we call an MVP, to use agile language, a minimum viable product in the next 30 days that we can actually test. That's one aspect. The other one is to try to think through the trading lineup, and see if one can kind of sequence things differently from when this was not a restriction. Yes, this is a topic that is occupying our minds a lot.
We already see a capacity conversation happening on e-commerce. Right now we went into the year saying, we were internally arguing with ourselves and the countries on, should it be 10% growth in the budget or 30% growth, which David, our global lead on e-commerce, was kind of touting. The country was saying, No, impossible. We kind of settled for somewhere in the middle. Now we're talking something that 10x that. You can imagine what that means for the supply chain and for the people at the packing lines, et cetera. That's part of the scenario planning for not only for Mother's Day, where we have a temporary solve in place, but importantly also for Q4. Already last year, we saw big spikes on putting pressure on the supply chain from Black Friday and onwards.
Definitely this is where retail is going to be challenged, and this is not just for Pandora. I think it's true for many people. In U.S., we are playing with things like, you have this click and collect facility, but actually there we've gone one step further, and you do curbside delivery. You place your order, and you turn up with your car, and somebody delivers it to you in the car. We are playing with lots and lots of interesting things in this space.
Do you believe that if you get a normal quarter, and that means not a second wave phase in infections, that a normal quarter would be lower than last year because you don't have the capacity in store?
I can't answer the question, no. I need to see what type of solutions we can bring. If I don't change any of my behavior from last year, yes, there will be an impact, but I'm obviously not taking that as a solution. That's why we're working through this.
Okay. Thank you.
Our next question is from Omar Saad from Evercore ISI. Please go ahead. Your line is open.
Thanks for taking my question. I have three questions. First one, do you have any insight you can share in terms of the store opening cadence? We know China, Germany is open. Any thoughts in terms of the rest of Europe, North America? Do you expect the rest of your stores and partner stores generally to mostly be open by the end of the second quarter? That's my first question. Second question, obviously inventory remains very clean. I'm curious how you're managing your factories and your production, how you're managing those fixed costs with volumes down. The last question, any specific comments around some of your new product lines, Pandora ME, and I know Harry Potter was big, Pandora O, Valentine's Day. Any kind of comments, pre-COVID comments on those trends? Thank you.
Hi. On the store cadence, we followed a very simple rule from the beginning of this crisis, and that is that we follow the guidance from the local authorities. We don't jump the gun because that somehow would suggest that we know more than the authorities do, and we clearly don't. I mean, we sell jewelry. That's what we are good at. You can read the news to figure out how retail in general is viewed by the governments. I'd say continental Europe, what we know so far is that we should expect that there's going to be a staggered opening approach throughout, I think, May and June. U.S., it depends on which tweet I read from Mr. Trump. I don't know what to believe.
I would say that they seem to be entering this situation a little bit later than continental Europe, if, again, we're to believe what's been reported. I would say that U.S. probably is one step behind. U.K., we just heard this morning that they are looking to start to reopen the market. That was a surprise to me. I thought they would have been waiting a little bit longer because they were also later out of the gates in terms of this. If I'd had to make a broad statement, I'd say Q2, you'd see a staggered reopening, and as we get into Q3, probably most of retail should be open. Ask me in a week's time, I might have a different opinion because authorities have changed their minds. That was your first question.
In terms of managing inventory in the factory, when the crisis hit, our main concern was what if Thailand shuts? All of our production comes out of Thailand. We actually cranked up the output from our factories in Thailand and then shipped it straight out of Thailand. We weren't kind of having any finished goods inventory in Thailand. I wanted to get that away from Thailand and into the DCs and into the stores around the globe. In case we would be facing some kind of a disturbance there, we wouldn't be affected. We hold, as I mentioned earlier on the call, something like 25 weeks of coverage in a normal demand curve. Right now, demand is lower than that, so likely our weeks of coverage is a little bit higher there.
In terms of capacity management, of course, we've put a forecast in place, and we're adjusting our capacity based on that forecast. You asked on some of the new product lines. We had a very strong start of both Pandora ME and Harry Potter. They've continued very strongly into January, February. We then launched birthstone rings, and in particular in U.S. and U.K., where this concept is strong in the mind of the consumer. They've done really well. What else? The collection on Valentine's Day was also very strong. Now, bear in mind that last year, I think, was a car crash that was terrible, so I'm not sure that the baseline is totally representative. In terms of the sell-through rates that we had, it did meet the objective.
Actually, I have my core doing really well based on the insights we kind of gleaned last year, and now we also have a couple of strong initiatives on top. This becomes a really nice mix when you run a business that your core is healthy and then you put new on top. That's how actually our growth model should look like. Whereas in the past, we unfortunately misfired on both. That's probably what I have for you today.
Thank you very much. It's helpful.
After no further questions, I will hand it right back to the speakers for any final comments.
Yeah, I think I'll just end where I ended the presentation. I shouldn't say that we're bullish, but I think we're very comfortable with that Programme NOW is delivering. I think we have found the right levers. We're investing in the product innovation, which we'll see more of, I think, in a 12 to 18 months window. We've stood up this new organization, which is there to ensure that Programme NOW wasn't just a project, but we actually can crank out these type of results on a continuous basis. We're recruiting in world-class talent, left, right, center. We're making Pandora a top player. There's still work ahead of us. Don't get me wrong. COVID is in the middle, so we have to kind of just motor through this. I stay very positive on the prospects of the company.
I think I will end on that note.