Thank you and welcome to Pandora's conference call following the release of our third quarter, 2013 results, distributed through the wires this morning at 8:00 A.M. The presentation for this call, as well as the full version of Pandora's Q3, 2013 release, is available on our pandoragroup.com/investor. My name is Morten Eismark from Pandora Investor Relations, and with me here today is CEO, Allan Leighton, and CFO, Henrik Holmark. In accordance with the agenda on slide two, Allan will go through the highlights for the quarter, followed by Henrik, who will talk you through the numbers in more detail. Finally, Allan will conclude the presentation, and we'll be happy to take your questions.
Before handing over to Allan, I kindly ask you to pay close attention to the disclaimer on page three. Allan, please.
Good morning, everyone, from a very rainy Glostrup. Can you turn to slide four? As we announced on the 31st of October, in connection with our upgrade of the 2013 full-year guidance, our momentum has continued into the third quarter of the year. We've seen better than expected sales-in, as well as sales-out, and profitability has improved across all of the regions. Let me just run you through some of the highlights of the quarter. And as always, please remember, as for the previous two quarters, that last year's stock balancing campaign had an impact on the comparable figures. Our Q3 2013 revenue was DKK 2.255 billion, an increase of more than 25% and actually 33% in local currency.
The main drivers of growth were this continued strong sales of the new launch products, that's continued on well, as well as our continued store expansion. Both in terms of geography and also in this continuous upgrading of our stores. By the end of Q3, we'd opened 116 new Concept Stores in 2013, which is more than expected. As for sales-out, the newness in our stores and the improved store execution across the majority of the regions continue to drive good end customer demand, which is very evident in our sales-out data. In Q3, like-for-like in our Concept Stores in all our major markets increased by high single digits or more.
EBITDA for the quarter was DKK 762 million, at a margin of 33.8%, compared to 28% for the same quarter last year. The increase was driven by, you know, higher profitability, obviously, in all the major regions, to Q2 last year, and particularly, in some of the Emerging Markets, France, Italy, Russia, where revenue growth saw real leverage, on the cost base. Free cash flow was DKK 363 million, even though we did increase our inventories to a more normalized level, plus, we saw an increase in receivables, largely driven by the higher sales at the end of the quarter.
Finally, as part of our 700 million share buyback program, we bought back shares worth DKK 220 million during the quarter, and as of Friday last week, we've bought back around DKK 598 million worth of shares. So if you could turn to slide five, and this is about the regional revenue development. As mentioned, you can see pretty solid growth across all the regions. However, some of the increases, you can see, was negatively impacted by pretty unfavorable currency headwinds when compared to last year. Revenues from Americas was DKK 990 million for the quarter, up 14.9% in local. While U.S. revenue was up 8.4%, also in local currency.
Outside the U.S., Americas really driven again by our revenue in Canada, which increased 22% compared to last year. Canada has become, you know, is becoming one of our larger markets and today makes almost 20% of the revenues in Americas. Our revenue in Europe was DKK 1.024 billion, corresponding to 45% revenue for the quarter. U.K. continued to show solid growth, but with some impact of some early Christmas orders. Germany looked better than it is. There's quite a large divergence in the performance of the owned and operated stores, which are doing well, and the franchise and multi-brand stores, which are doing less well.
We'll be embarking on a corrective surgery on our German business, and you can expect the future performance to be a bit volatile. Outside of our core markets, Italy, France, and Russia, as I mentioned before, continue to progress well. As mentioned in the Q3 release, these three markets are now generating more than 50% of the revenue of other Europe. Revenue from other Europe was almost up 80% for the quarter, and now is around 25% of revenue for the group. So that's developing nicely. In Asia Pacific, revenue increased 57.7% in local compared to Q3 2012. Growth in DKK was 37.7%.
So that's pretty heavily impacted by an unfavorable development in the Australian dollar. In general, the positive revenue development was again driven by strong performance in Australia, as well as in a number of the slightly smaller markets in the regions. Those small in size, you know, markets like Hong Kong, South Korea, Singapore, Malaysia are starting to make up a fair share of revenue in the region. And also in these markets, we're starting to see some leverage. If you turn to slide six. Sales- out positive in all the major markets. As mentioned, our four major markets continue to show positive development in like-for-like sales out. As you know, for me, this is absolutely key metric.
And leaving out Australia, all markets have now been in positive territory for around five quarters in a row. We still believe that newness in our stores is key. This sort of targeting our marketing effort in a very integrated, holistic way around our seven new Drop Structure. And we are getting better by the day in store execution, although still some way to go. And the combination of all those things really is driving transactions and transactions are the major driver of our like-for-like in all stores, which is generally a pretty good reflection on that you've got most of the product right.
The U.S. and U.K. continue the strong momentum, like-for-like sales-out growth of 13% in the U.K., sorry, in the U.S., very good number, and 14% in the U.K. Also Germany in positive territory with growth of 8% in the quarter. But as I say, looking a little better than it probably is. Like-for-like sales-out in Australia again continues to improve, 25% up for the quarter. And although it's on easy comparable still from a year ago, it's clear that the hard work and distribution cleanup in Australia is having an impact and working. And the like-for-like figures on the slide measure about 80% of the Concept Stores in the four countries.
Remember, stores to be open more than 12 months to be included in like-for-like sales. If you turn to slide seven, it talks about the performance of the newly launched products. As mentioned earlier, the commercial success of, of the new product launches continues and is pretty evident across all the markets. In the third quarter, roughly a third of all of the sales-out of our stores was generated by products that have been launched within the last 12 months. This is driven, as we've talked about before, by the changing in, in Drop Structure, which is providing newness and freshness in product assortments, which brings, you know, basically more customers to the stores, and as the product's relevant, then transactions improve.
Keeping to our focus on Affordable Luxury, making sure that our commercial price points are as they've been, and they are. And really, all the drops following the change in Drop Structure have sold in and sold out well. Also, as I mentioned, I think, on the last quarter and when we talked before, which is for me, equally important, is the fact that the traffic being driven also means that the sale of our older products is also increasing, and that is significant. If we move to slide eight, just sort of headline on Essence, it's, as you know, our latest collection, it was launched on the 4th of November.
It's the first time we've done something like this for a long time, and it's more than a product. It's, for us, a different dimension, where we focus really on you know, meanings and values, as opposed to Moments or in addition to Moments where we've been before. You know, the collection was built on extensive research, literally compiled with the help of thousands of women across the globe. It's very early days, but the initial feedback's encouraging. If you move to slide nine, as you all are aware, I guess, we upgraded our financial expectations on 31st of October. We now expect revenue to be approximately DKK 8.6 billion and EBITDA margin to be approximately 30%.
And that's up from the approximately DKK 8 billion and approximately 27% respectively before. CapEx guidance un changed, and we expect to invest DKK 400 million in 2013, and that's excluding the DKK 190 million extraordinary investment in Trollbeads, which you're aware about, and the investments related to distribution in Brazil. And finally, we now expect to open approximately 195 Concept Stores in 2013, up from the 175, and the tax rate will change, remain unchanged at 19%. So with that, I'll hand you over to Henrik, who will give you some more detail on the financials.
Thank you, Allan. Please turn to slide 10, which looks at the revenue development in the quarter. Our total revenue increased by 25.7% to DKK 2.255 billion, whereas, as you know, last year was impacted by the stock balancing campaign. Excluding FX, revenue increased by 32.9%. Volumes increased 25.7%, and the average sales price was therefore unchanged at DKK 133. The latter, however, due to negative FX impact, the increase in ASP in local currency is driven mainly by a change in product mix, which can be impacted by the stock balancing campaign in 2012. The price on the individual product is unchanged compared to a year ago.
Provisions for returns at the end of Q3 2013 were in revenue value, corresponding to approximately 8% of 12-month rolling revenue, which is also expected to be the level at the end of the year. The shift from the previous 9% is a consequence of the continued success of our newer products, resulting in lower actual returns. The change in our commissions had a positive effect on revenue of approximately DKK 80 million for the quarter, and an approximately one percentage point impact on the EBITDA margin. In Q3, 82% of our revenue came from branded distribution, a continued high proportion in line with our strategy of focusing on branded sales channels. Please turn to slide 11, which looks at the development in our distribution network.
The total number of points of sales is largely unchanged from last quarter, increased by 8, compared to Q2 2013, to a total of 10,345 points of sale globally. In Q3 2013, we added 62 new Concept Stores and a net total of 105 branded points of sale. The majority of the Concept Store openings in the quarter were in the Americas and Europe, with Russia as the largest contributor. Please turn to slide 12. Looking at product mix. When comparing product mix or revenue mix to last year, please consider that last year's data was impacted by the stock balancing campaign, which makes comparison to last year difficult. Generally, products launched in 2013, as Allan mentioned, are selling well, both in sales-in and sales-out.
Our bestseller lists are still dominated by products released within the past 12 months. In Q3 2013, revenue from charms increased by 9.4% compared to the same period last year, while revenue from silver and gold charms bracelets was up 31.6%. These categories in Q3 2013 together represented 78.5% of revenue, versus 87.5% in Q3 2012. Rings increased by 31.8% and represented 7.7% of total revenue in Q3 2013. Revenue from rings was driven by an improved offering, as well as an improved marketing, focusing on rings in selected markets.
The growth in other jewelry of 241.8% is mainly from, the Silver Bangle that we launched, earlier this year, as well as a strong growth from earrings, which was driven by an improved offering. Please turn to slide 13. Gross profit for Q3 was DKK 1.493 billion, compared to DKK 1.150 billion in the same period last year, resulting in a gross margin of 66.2%, compared to 64.1% last year. The increase in gross margin for the quarter, compared to Q3 2012, was primarily driven by lower commodity prices. Excluding our hedging and the time lag effect from our inventory, the underlying gross margin in Q3 2013 would have been approximately 71%, based on average gold and silver market prices for the quarter.
Under the same assumptions, a 10% deviation in quarterly average gold and silver prices would impact our gross margin by 1-2 percentage points. Please turn to slide 14. The OpEx ratio for the quarter was 34.8%, compared to 38.3% for Q3 2012. The decrease was primarily driven by higher revenue, and at the same time, almost flat admin expenses in nominal terms compared to last year. Sales and distribution expenses increased to DKK 354 million in Q3 2013, compared to DKK 287 million in Q3 2012. The increase was driven by higher revenue, and therefore higher level of activity, as well as higher share of O&O stores.
As pointed out in the upgrade release that we released on 31 of October, sales and distribution costs for the fourth quarter are expected to increase significantly in nominal terms compared to the three previous quarters. Marketing costs increased to DKK 211 million, compared to DKK 190 million in Q3 2012. Also, marketing is, is expected to increase in Q4, due to Christmas, as well as expenses to support the launch of our new Essence Collection. Administrative expenses were DKK 220 million, compared to DKK 210 million last year. Administrative expenses are expected to, to be on roughly the same absolute level in the fourth quarter for the year. As you will have noticed, we've had a fairly stable development in admin expenses during 2013. Please turn to slide 15.
EBITDA Q3 2013 increased by 51.5% to DKK 762 million, resulting in an EBITDA margin of 33.8%. This compares to 28% in Q3 2012. The improvement in EBITDA margin is primarily due to improved leverage in our new markets. EBITDA margin in the Americas increased slightly compared to Q3 2012. EBITDA margin in Europe increased to 39.6%. The increase is driven by improved profitability, driven by higher revenue, particularly in our newer markets, Russia, Italy, and France. The margin in Asia Pacific increased to 40.2%, mainly driven by an increase in revenue across most markets, in that region. Unallocated costs were 7.9% of revenue in Q3 2013, compared to 9.1% in Q3 2012. Please turn to slide 16.
For the quarter, net financial income amounted to DKK 47 million, significantly impacted by FX . Income tax expenses were DKK 143 million, implying an effective tax rate of 19%, in line with our expectations for the full year, and reported net profit increased by 61% to DKK 612 million, compared to a net profit same period last year of DKK 380 million. Please turn to slide 17, sorry. Operating working capital at the end of Q3 2013 was 25.6% of last 12 months' revenue, compared to 42.3% at the end of Q3 2012, and for 24.9% at the end of Q2 2013.
In Q3 2013, we generated a free cash flow of DKK 363 million, corresponding to a cash conversion of 59.3 million, compared to a negative cash conversion last year of 23.2%. Did I say that cash conversion was 59.3 million? I meant 59.3%. Inventory decreased to DKK 1.603 billion at the end of Q3 2013, from DKK 1.922 billion at the end of Q3 2012, where roughly two-thirds is driven by lower commodity prices. The increase of DKK 140 million compared to Q2 2013 is due to more normalized inventory levels, which were at low levels, in Q2 2013.
Trade receivables increased to DKK 1.017 billion in Q3 2013, corresponding to 12.2% of preceding 12 months revenue, which compares to 11.7% same period last year. The increase compared to last quarter of DKK 230 million is due to the timing of revenue within Q3. Trade payables was DKK 481 million at the end of the quarter, compared to DKK 184 million at the end of Q2. This increase is primarily due to reclassification of DKK 203 million from other payables to trade payables, which is related to accrued expenses being moved in between those two lines, which means that a similar reduction is therefore seen in, on other payables.
For the quarter, CapEx was DKK 71 million, and finally, at the end of the quarter, we had a net interest-bearing debt of DKK 175 million, corresponding to 0.1x net interest-bearing debt to EBITDA, compared to 0.5x net interest-bearing debt to EBITDA end of Q3 2012. With this, I'd like to hand back to Allan to the presentation.
Thank you, Henrik. If you move to slide 18, which I think is the summary slide, the headlines are, as we said, revenue up more than 25% and actually higher in local. You know, continuing strong performance from the newly launched products. Gross margin up at 66.2%, EBITDA margin 38.8%, free cash flow DKK 363 million, upgraded guidance and the share buyback at around DKK 700 million, and therefore, on track. In summary, I'd say we're sort of continuing to make progress. To me, this sort of confirms that we've the business has reestablished a base to build from in terms of platform. As you all know, the third quarter was the last quarter of the easier comparables.
And I think we will now enter a period of more modest headline growth, but still underpinned by a continued strong operating performance. And so that concludes the presentation, and we'll open this up for any questions you may have.
Thank you. If you would like to ask a question, please press star one on your telephone. The first question comes from Michael Rasmussen from ABG Sundal Collier. Please go ahead.
Hello, everybody. I'd like to start talking a little bit about the initial take from the Essence launch. So, what are consumers saying out there in stores? Do you think it's brought in any new customers into your stores? And also, was there a sell-in effect on Q3 from the launch? My second question being on the gross margin. If you guys are still doing the night shifts in Thailand, can you please confirm what negative effect is also seen that could have on your gross margin? I know on previous occasions you've said that they are less efficient working at night. And my final question being on the online channel.
Could you please give us an update on the U.K., where we're about one year into the launch now, and also talk if you have any other markets online, and what is the feedback here? Thank you.
Thank you. It's Allan. So on Essence, I think it's, you know, it, it's too early to say, and, it's, it's less than a week. As you know, it's a number of markets, but in reality, it's the four core markets in concept stores. As I say, I think the, the trade reaction has been, has been pretty good. There's not a significant amount of volume, in Q4, in Essence. So I'd say it's too early to tell, but from, from the early feedback, well, I think we feel that it's, it's where we'd want it to be. The number one selling charm is Wisdom, which tells you something. We could all do a bit of that.
The number two selling charm is Freedom, which I think we could all do with, and Passion actually only comes in at number three. That's all we can tell you about Essence. Early days, we'll see how it goes. On the gross margin, the night shift-
One other question on Essence. No, there's no sales-in impact in Q3?
No. No, no sell-in impact in Q3, in Essence. As far as the gross margin concerned, the night shift has no impact on the gross margin. I could talk a bit about more manufacturing later on, if somebody wants to ask. And then, in terms of online, you know, U.K. is nearly a year on. I think we're very pleased with it. You know, we've got a relatively good level of sales. We've got very good conversion rates, and we have generally pretty low returns. So, we're feeling in pretty good shape about that. We've learned a lot. I think we'll now go, you know, we're going into Christmas, so that'll be an interesting time.
That's when we went a year ago, so, we'll see how that goes. But I'm pleased with it. We've gone into Germany and Austria, very low key at the moment, but you could expect, particularly in Germany, for that to ramp up, more so in Q1 of next year.
Thank you very much.
Thank you. Your next question comes from Lars Topholm from Carnegie. Please go ahead.
Yes, a couple of questions, if I may. Allan, you mentioned you, yourself, you could comment more on capacity expansion, et cetera. So, I'd like to know how you see that now, particularly how you see it affecting Q4 costs. I think in the presentation, it was mentioned that cost would go up in nominal terms. I wonder how you see Q4 operating expenses in relative terms. And a second question, if I look at sales in the U.S., it's up. We shouldn't call it only 8.4%. I think the percentage is good, but it's clearly lower than the like for like sales out. Do you see that as the channel waiting for the new concept, or are there any particular explanation for an apparent destocking in the U.S.?
A third question goes to the capital structure. You can gear your balance sheet up to 1x EBITDA, according to your financial targets. And, as you mentioned in the major markets, apart from Australia, you know, you now have five quarters in a row with positive same-store sales. What would it take for you to begin to gear the balance sheet? Is this anything we should factor in at all, for instance, in, let's say, in a three-year timeframe? How do you look at that? Thank you.
Thanks, Lars. So, let's sort of first of all, within terms of Thailand, I mean, number of points, really. So, actually, the factory is now nearly week in, week out, producing record volumes. And so that's very good. We've been able to get more juice from the existing orange, which is what I thought we would be able to do. And you know, I think as far as the rest of the year goes, as we said, you know, at least we feel that we've now got the capacity to do what we need to do.
However, we still are gonna need more capacity, and that work is being done, as we said, it's a sort of feasibility stage, both in terms of new factory and what we can do within existing site, which I know Thomas and who runs that feels, you know, that can be done. And so I, I'm very pleased with the progress that we've made down in Thailand. And as I say, you can't ask more than record production, and that's what-
No, no, clear, but I'm also asking in terms of cost, because I remember after Q2, when we discussed the implicit guidance for the second half of the year, you mentioned that costs would be incurred relating to a capacity expansion in Thailand. So to what extent has it affected cost in Q3, and how do you see it affect Q4?
I think we talked about there may be some CapEx costs, and there may be some operating costs. There's been a bit of operating cost impact in Q3, as you'd expect, but nothing of any significance. It's been much more, as I say, juice from the existing orange, and that's why, you know, I feel that they've done a very good job down there.
Okay.
The second thing is on the U.S. We actually feel very good about the U.S. The key number in the U.S. is the like-for-like sales now. And that number is very strong. We also get very good feedback from Jared and people like that, where we are now the number one brand in terms of the U.S. You know, we're a wholesaler, and what happens with wholesale volumes sometimes switch from quarter to quarter, and we may well see this effect in the U.S. in Q4.
So you could actually see a pick up in what should we call it, the discrepancy between sales- in and sales- out in the U.S. in Q4?
Lars, I think I just said exactly what I can say is that.
Fair enough
We may well see this discrepancy that often happens quarter to quarter. You know, it happens in all our markets. We may well see this in the U.S. in Q4. But fundamentally, in the U.S., for me, the most important number is that sales-out number, and it is very strong.
I would agree.
The third thing in terms of capital structure is, you know, where we are on that is we've got a capital structure, and we have a, it's that, that's what we are working towards. You know, as we exit the year, clearly, if there's any change in that, then, you know, we communicate that to the market. But at the moment, you know, the business is very focused on the next six weeks. The next six weeks, sales are pretty fundamental. You know, there is a, you know, very busy time, crucial time. And so, you know, we'll, when we come out at the end of the year and we know exactly where we are, then, you know, we may have that conversation. But capital structure is as is and remains as is until changed.
Oh, okay. And then the question on the relative operating cost level in Q4, maybe if you compare it to Q3, do you see it higher, lower, largely in line?
Well, again, I, you know, I think we said, what tends to happen in costs is that they always go up in Q4. That's part of where it is. We've got I think we see more, slightly more costs in sales and distribution. We will certainly have a higher cost in marketing. And, because we're doing two things, we've got our normal Christmas activity, for want of a better description, plus Essence. And so, you know, we would expect marketing costs to be higher, could be as high as 14%. And then on admin, we've always guided around the same number, and I think that's probably a pretty good number to work towards. So certainly higher sales and distribution, and certainly higher marketing costs.
Okay. Thank you very much.
Thank you very much.
Thank you. Your next question comes from Antoine Belge from HSBC. Please go ahead.
Yes, hello, it's Antoine Belge from HSBC. And three questions, if I may. I think you've mentioned in your speech that Germany we should expect some more volatile figures. Can you maybe be a bit more explicit about what you intend to do in Germany? Second question is relating to Russia, Italy, and France, and we've seen some leverage impacts. How far are we in this country in terms of profitability versus the average of the group? And finally, there were some FX impacts in the third quarter. I think you've explained that at the top line level, what was the impact at the EBIT level?
Should we expect some delayed impact due to the fading of hedging in the future? Thank you.
Let me. I'll sort of give the hedging to Holmark. Let me talk about Germany and the Emerging Markets. Germany, I mean, the real issue in Germany, as I say, the owned operated store is actually doing pretty well, but our franchise and other stores are not. In my mind, it's a combination of things. We have definitely got overdistribution, which we've always had, which we've tried to tackle, but probably, you know, need to go again. I think we have a number of poor sites, and generally, the sort of execution is not good. We're also very over complex in terms of trading.
And, you know, now, it's time for all that to be faced into. You know, the business is in stronger shape. It can handle, you know, a more volatile performance in Germany now. And, you know, that's now what we're going to really start tackling. So, you know, as I say, I describe it as a piece of surgery, which is what it will be. And, it will, you know, we can expect to see some volatility in that market, but it just has to be done. You know, here is a market, which in my view, should be doing significantly more revenue than it's doing, and also be significantly more profitable than it is. And it's time really to get on with that.
The second thing is, the sort of counterpoint in a strange way is, you know, Russia, Italy, and France are developing well. You know, Russia is a tremendous market for us. I was there in Moscow for two days last week, Thursday, Friday, and you know, the store set up, the organization there is very, very good. And so we see continued growth from that market, extremely well managed. Italy, I would say, similar. You know, Massimo runs that, very good team. We've built that business in the way we should have built it. And you know, again, we're beginning to see that performance kicking.
I would say both of those two markets, Russia and Italy, are probably halfway now to where they can be and where we would call them more core. So there's still some work and opportunity there. France in the same way actually runs that we're building that business properly, and although yet not of the scale of Russia and Italy, is coming through very well. And you can see in the numbers, when you start to get to revenue to a certain point, then there is, you know, some good leverage on the cost. So, you know, it's a very, I see two extremes here.
Germany as an extreme of underperformance, and I see Russia, Italy, and France as businesses that are incredibly well run, where we have very good locations and a very good structure, and that's coming through. Do you wanna just comment on that?
Yeah, Antoine, could you please repeat that last question just to make sure that I give you the right answer?
Yeah, I think from your release, we can see the negative impact from FX on the top line. What was the impact at the EBIT line? And also, given, you know, hedging, et cetera, should we expect maybe some more impact, but delayed, to 2014 because of hedging?
Well, in terms of impact from hedging, you could say that the
The individual lines in our P&L are actually converted, translated into Danish kroner from local currency by the actual spot prices in the quarter. The deviation between those spot prices and our hedge prices are then what you see expressed in the financial items line, which actually has a small plus this quarter. If you look at the impact from FX compared to last year, when you come into Q4, current expectations is that we will see some negative impact as well on the top line. That will then flow through to the EBITDA margin from a percentage point of view, actually, the idea is that declining FX, particularly on the U.S. dollar, has a slight positive impact on the percentage margin, but nothing significant.
So you should expect to see that top line impact flowing, pretty much through to the top line, as well in Q4. Sorry, to the bottom line, as well in Q4.
Okay, thank you. Maybe just a follow-up in terms of calendar. When will you provide initial guidance for 2014? And when will the Board of Directors consider maybe the question of a possible new buyback program?
We will report, we will give guidance for next year when we report our annual results, which is scheduled for mid-February.
The answer to both those questions is mid, mid-February.
Okay, thank you.
Thank you. Your next question comes from Fasial Ahmad from Handelsbanken. Please go ahead.
Yes, Fasial Ahmad from Handelsbanken Capital Markets. I have a couple of questions. The first two for Henrik, and the last one for Allan. Starting off with Henrik's question here. You are talking about an early Christmas delivery impacting the U.K. sales-in figures. Can you try and help us understand how big that impact was, and if that was significant? And the second question, you did a provision reversal in Q3. What has the revenue impact been from that on the regions? Is it impacting a specific region, and how much is the impact from that? And the last question to Allan, you opened quite a few new stores here during the year.
Can you maybe just comment on how they are actually progressing? How confident do you feel that they will survive? Yeah, just if you could provide some flavor on that. That's all.
Thanks. On the early Christmas orders, it's difficult to give you an exact amount, but you see it reflected implicitly in the deviation between our reported sales out and sales in. So you can say what drives that lack of correlation, you could say, is basically that we, you know, sell in, have some early Christmas orders included. So I think that's the closest I can come to giving you an answer on that. On the provisions, the top line impact for the group, as I mentioned, is DKK 80 million. In terms of how that then can be broken down to regions, I think you would all know that the majority of our provision, or the, we have operations skewed towards the U.S. market or the Americas.
So that also means that the DKK 80 million is skewed towards the American market.
As far as the we have opened a lot of stores, as you know, or as you need to know, is that we're not in the numbers game. We're in the quality game. What's important to us is not the quantity of stores opened, but the quality of stores we open, because they are, you know, in the end, what is sustainable. I feel very good about the quality of stores that we've been opening up. You know, we've got a lot of. One of the reasons that, you know, a number of Concept Stores coming in much greater, is the success of the business.
And therefore, you know, we've got lots of existing franchise partners who, you know, clearly want to open more stores, and a lot of people want to come in. And so I feel, in short, I feel very good about the quality of the stores, and that is very much our focus. I'd rather open, you know, 50 really good ones than 150 very average ones.
Okay. And just a follow-up question to Henrik. Henrik, you stated that the bulk of the DKK 80 million provision, that's impacted U.S. revenues in Q3. But if you then look, if you take that into account, then the discrepancy between sales-in and sales-out becomes even larger in Q3. Should we basically expect that that's a late delivery in Q4, or how do you want to think about, how do you want us to think about that?
This could become a very long discussion. I mean, the short of it is that we have 8.4% growth in selling in the U.S. in the quarter. We're very happy with that. We are growing like-for-like double-digit. We are very happy with that. The journey to the U.S. is in a very healthy state. You can play around with stock balancing. We can start talking about how revenue was impacted by provisions last year, which was a lower impact than this year. But, I mean, all in all, the fact is that U.S. is in good shape, and we're happy with that market and the way that it performs.
Okay. Thank you.
Thank you. Your next question comes from Dan Wejse from Nordea. Please go ahead.
Yes, hello, Dan Wejse from Nordea. Questions about all the Europe, very, very strong growth here.
One of the explanation is that, Spain is starting to take your products again. Please elaborate a bit on that, and also maybe if you can comment a bit on the Russia development from a delivery perspective. Are there some special things we should be aware of, regarding this quarter that you are already now delivering for Christmas, or is it usual business? So please tell us a bit about that. Then on the store development in Europe, I see that around 25% of the Concept Stores you opened in the quarter is owned and operated. Please elaborate on that. Is there any changes in your setup there? And why are we seeing a decline in gold stores in Europe?
And then, lastly, on your metal price or your gross margin, you now state that you had a gross margin of 71%. I believe it's a slightly lower level compared to previously, from on spot prices. Is there any changes? Is it because you're delivering more to Spain, Russia, et cetera, that the gross margin effect will be lower, but then also on the OpEx side? So what is actually the dynamic of changes in split on revenue from Q2 to Q3, just so we can have a bit of comparisons on the gross margin development, whether there have been some underlying changes, or it's just because you have a different mix this quarter than last quarter?
Well, now I'll try on the first bit, and Henrik can do the metal prices. I mean, other Europe, I mean, Spain's helpful, but it's largely driven by Russia, Italy, and France. And the Russian, so I can't remember. As I say, I went over there for a couple of days last week, and I was, you know, just very impressed. We're not really changing very much. We just got a very good organization over there. And you know, that market is, I think, probably the fastest-growing retail market, maybe in the world, certainly in Europe at the moment. You can certainly see that in the way in which it's developing.
We just have, you know, we've now got 100-something Concept Stores in Russia. When we opened Oxford Street, we actually opened our 100th Concept Store, which happened to be in Moscow, where I think we've got, you know, 40, 50 stores. It's just, it's a very good operation. I think the other thing is that, as you know, we have to hallmark. I mean, that is the only operational difference is that we have to hallmark, and that hallmarking has to take place in Russia, so that tends to extend, you know, the supply chain a bit more. But, you know, as I say, I spent a couple of days there with the team and with the market.
It's a pretty impressive performance in a market which I think is, you know, very strong. Italy, I commented on. I just think we've built that business. I think we've built the Russian business well. I think we've built the Italian business well, and I think we're building the French business well. And I think that's what makes the difference. As far as slowdown in gold and all I'd say is it sort of moves around a bit. It largely happens in terms of, you know, there's no particular focus to slow on gold. It's just the way the sort of cookie crumbles, so there's nothing to read into that. O&O, I think the same about Russia.
Russia is an owner-operated business, so all of the stores are owner-operated, and with a small bit of wholesale.
O&O.
But it's not in our O&O numbers, but that's how basically it works. Most of the change in O&O is we are opening some more owner-operated stores, but it's no real change in strategy. Italy tends to be driving that. And you know, we've always talked around O&O stores, around that 10%, 11% mark, and that doesn't change. So there's no change in strategy. It's just you know, when great sites come along, sometimes you can you need to take them yourselves to establish them, and sometimes you put them with a franchise.
Just on Russia, I was more thinking, is there any changes in your delivery structure to Russia? And then just to be sure, so the stores that are being opened in Russia, are they counted as owned and operated, or how are they? Just to be sure.
No, they're not. They're not counted in our O&O numbers.
The O&O stores in Europe that you see popping up in Q3 are mainly in markets like Italy and France, where we operate the stores ourselves currently for the vast majority. In terms of deliveries, I mean, generally, distributor markets get sort of earlier deliveries for the Christmas sale, so there's no change in that for year-over-year. That's just a matter of that we are sort of one step further back in the chain. So we need to make sure that we service them early to for them to be able to service their customers in Q4. But no change as such.
Okay, thanks.
On your last question, then, the gross margin, it's correct that we, the gross margin, we say approximately 71%. So if you put the decimals to it, it might be a little bit different, but approximately 71%, this quarter and the quarter before. However, on lower gold and silver prices this quarter, there is a mix impact. As you can see, the distributor revenue this quarter is higher than last quarter. So there is a mix impact on that, and that's probably the most significant impact on that.
Okay, thank you.
Thanks.
Thank you. Your next question comes from Niels Leth, please, from SEB. Please go ahead.
Yes, good morning. My first questions would be regarding your expansion into some of the new markets, such as Brazil and the U.S. West Coast. Could you update us on the expansion plans into these regions? And for the U.S. West Coast, how much does this region account for of your U.S. sales or point of sales? Secondly, I would like to ask you about the overall pricing of the jewelry industry. Have you seen any signs of any of your reference brands pricing down in the wake of the lower gold and silver prices? Thank you.
In Brazil, as you know, we've just taken that over. And we will use Brazil as part of our and how we really develop our business in South America. It's been sort of managed partly by export and partly by the U.S. And now, we'll sort of pull it all under one group. So, Scott Burger, who runs the Americas, will now obviously run South America because this makes sense, and it's a much easier thing to do. So, you know, that we're early days, we're really pleased with the Brazilian acquisition.
We've got some quite nice businesses in South America, but clearly, we see that as an area of opportunity, and it'd be for Scott and the South American team now to develop that up. But we see sort of that as the platform. As far as, you know, breaking down, we don't break down the—well we do, but we don't sort of pass out the information as a breakdown of the U.S. business because we don't need to. I think the only thing I would say about the West Coast is that, you know, I think we're making progress. I think we're stronger up in the north of the West and the South of the West. But you know, I think we're beginning to make progress there.
And I think certainly Scott feels very positive about how that business is developing and how that business can develop. As far as other players, we're not really seeing any major price activity from other brands. As I say, we see the market as much as is and much as was. You know, clearly, we are very tough on holding our own prices, because we know that affordable luxury is very good, and you know, we believe we're in a sweet spot, you know, where we sit. But in terms of overall market stuff, we don't really see that much change or movement.
Okay, thank you.
Thank you. We have no further questions on the phone lines. Please continue.
Good. Okay. Well, thanks, everyone, and thanks for your time, and we'll no doubt be seeing some of you over the next few days. So thank you very much.