Thank you for standing by and welcome to the Pandora Q1 2013 report. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session, at which time, if you wish to ask a question, you'll need to press star one on your telephone. I must advise you that the conference is being recorded today, Tuesday the 14th of May 2013. I'd like to hand the conference over to our speaker today, Head of Investor Relations, Morten Eismark. Please go ahead.
Thank you, and welcome to Pandora's conference call following the release of our first quarter 2013, distributed via wires this morning at 8:00 A.M. The presentation for this call, as well as the full version of Pandora's Q1 release, is available on pandoragroup.com/investor. My name is Morten Eismark from Pandora Investor Relations, and with me here today is CEO Bjørn Gulden and CFO Henrik Holmark. In accordance with the agenda on slide two, Bjørn will go through the highlights for the quarter, followed by Henrik, who will talk you through the numbers in more detail. Finally, Bjørn will conclude the presentation. I'll be happy to take your questions. Before handing over to Bjørn, I kindly ask you to please pay close attention to the disclaimer on page three. Bjørn, please.
Thank you, Morten. And good morning, everybody. Please turn to slide four. I'm happy to say that following a challenging 2012, we feel that our business is now back on track. We are experiencing a strong demand for our collections, both from the retailers and from the end consumers. This is visible both in our sales-in and, more importantly, in our sales-out numbers. Revenue for the first quarter increased by 40.6% to just over DKK 2 billion, and all three geographic regions show strong growth. This increase was, to a large extent, driven by high demand for newly launched products. Please do also bear in mind that the Valentine's Day drop this year was in Q1 and not in Q4 as it was last year. This had a positive impact of approximately DKK 150 million for the quarter.
Also, the stock market campaign last year has had an impact on the comparable figures for Q1 last year. This is, however, as you all know, more difficult to quantify. As initially mentioned, our sales-out from our retailers has been very strong. All of the four major markets that we report on generated exceptionally high numbers with double-digit sales-out growth. This is very encouraging as it gives you a good indication of the end consumer's demand. However, we must remember that they were positively impacted by Easter shifting from Q2 last year to Q1 this year. This will impact the comparison for next quarter, Q2, negatively. The comparable numbers for Q1 2012 was, with the exception of U.S. weak, for all markets, so they were easy to beat. And I personally think that the bad and cold weather in Q1 had a positive impact on our sales-out.
We know that other segments, like apparel and shoes, were negatively impacted by the weather. People do not buy sandals and T-shirts when the weather is cold. I think it was working the opposite way for us. People like to spend, and I think they spend money on categories like jewelry instead of weather-dependent fashion. EBITDA for the quarter was DKK 643 million, corresponding to a margin of 32.1%, which compares to a margin of 28.2% for the same quarter last year. This is despite the fact that our gross margin decreased 6 percentage points compared to Q1 last year, primarily due to increased commodity prices and the suspension of the duty relief in the US. Free cash flow was DKK 406 million and continues to be strong.
It would have been even stronger if you take out the extraordinary investment of DKK 190 million related to the purchase of IP rights from Trollbeads. Finally, as part of our DKK 700 million share buyback program, we bought back shares worth DKK 61 million during the quarter, and as of Friday last week, we have bought back for around DKK 155 million. Please turn to slide five. This slide looks at revenue development by major geographies and markets. As you can see, we have seen very strong growth in all three geographic regions for the quarter. And also, of the four major reported markets, the U.S., U.K., Germany, and Australia delivered encouraging growth. All markets were positively impacted by Valentine's Day, and please do also remember that comparable figures for Q1 2012, primarily for the U.K. and U.S., were impacted by the Stock Balancing Program.
AmHenrika continues to be our largest region with more than 50% of sales, and they increased 38% for the quarter. In the U.S., our largest single country, revenue was up 36.6% versus Q1 2012, or 37.4% measured in local currency. It is encouraging to see our largest market grow at this rate, especially as the growth is mainly driven by new product launches. Throughout AmHenrika, sales were up 43.3%, and again, growth was primarily driven by the Canadian market, which is becoming an increasingly important market for Pandora. Revenue from Europe was up 50.4% for the quarter. Growth was driven by the U.K., which was up 41.8%, as well as throughout Europe, which increased more than 70%. Again, this growth was primarily driven by our new markets, France, Italy, and Russia. Revenue in Germany increased 8% compared to Q1 2012.
We see this as a positive sign, but recognize that although many initiatives have been put in action in Germany and sales-out of concept store has improved, we need continued hard work and more growing quarters before we can say that the German business is back on track. In Asia-Pacific, revenue increased 26.1% compared to Q1 2012. The positive revenue development was driven by strong performance in Australia, as well as a number of smaller markets in the region. Reported revenue in Australia was up 19.4%, while all through Asia-Pacific was up 40% compared to Q1 2012. All through Asia was driven by strong growth in markets like Hong Kong, Malaysia, and Singapore. Now turn to slide six. As mentioned, our four major markets showed a positive development in sales-out. These markets had double-digit line-for-line growth in the first quarter of 2013.
We believe improved products, improved marketing, and better in-store execution have caused the consumer to buy more in our concept stores. But we also have to admit that these exceptionally high growth numbers must be put in perspective. Shifting [is are] easy comparison from 2012, and a possible weather effect is what you should remember when analyzing them. The U.S. continued the very strong momentum with line-for-line sales-out growth of 15% for the quarter. This is impressive when you know that the U.S. had a strong quarter being up 7% a year ago. U.K. continued their trend from Q4 and had very strong sales-out in the quarter, with line-for-line being up 18%. Even on easy comparison, down 16% a year ago, we believe that our business is back on track in the U.K. Germany was again positive with an increase of 18% compared to Q1 last year.
The positive trend in sales-out that we have seen in the three previous quarters continues, and we see that the consumer is responding to what is happening in our concept store. Our challenge is to continue this work and to make sure that our distribution and offer outside our concept store is improving and strengthened. This goes especially for key accounts and department stores. Australia also had a strong quarter with 16% line-for-line growth, admittedly on easy comparison. We now see the benefits of the hard work and distribution clean up in Australia and feel that the business is normalized and back on track. The line-for-line figures on this slide measure about 80% of concept stores, and remember that a store has to be open for more than 12 months to be included in line-for-line sales.
We believe that the current trend confirms that our new products and price structure is being well received by the end consumer, that our marketing and in-store execution has improved, and that we, in a general difficult retail environment, are performing well. In addition to these sales-out numbers from our four major markets, I would like to add that we're also very satisfied with how new markets have developed. Countries like Russia, Italy, and France have all performed better than anticipated, both in sales-in and sales-out. Please turn to slide seven. As I've said every time we speak, product is king. Without the right product at the right price, any brand will struggle. It is therefore nice to see that our growth is coming mainly from the new product launches. Every drop since Spring/Summer 2012 has sold in and out very well.
This is also the case for the product launched in 2013: Valentine, Mother's Day, and Spring. It is, however, also assuring to see that all the product, the standard carry-forward product, is selling at the same absolute level as last year. The summer range, or drop, is now on its way to the retailers, and the reaction from the previous has been positive. I'm also happy to see that the rings are continuing to do well. We have said that rings is a great growth opportunity for us, and we see some of that opportunity being harvested already. We are now in the process of launching our fall/winter collection and believe that this product, including a new charms- embraced concept, will make us well equipped for the second half of the year. Now please turn to slide 8. Financial guidance for the full year is unchanged.
We still expect revenue above DKK 7.2 billion and an EBITDA margin above 25%. Just a quick comment to CapEx guidance. The guided approximately DKK 300 million is excluding the DKK 190 million extraordinary investment related to Trollbeads IP rights that we made during the quarter. We still expect to open approximately 150 Concept Stores in 2013. With this, I would like to hand over to our CFO, Henrik Holmark, who will go into more detail regarding our Q1 numbers. Henrik.
Thank you, Bjørn. Please turn to slide nine. As Bjørn mentioned, all our three geographic regions showed strong growth driven by high demand for our newly launched products. Overall revenue for Q1 2013 was strong, even taking into account the move of Valentine's from Q4 2012 into Q1 2013. Total revenue increased by 40.6% to DKK 2,002 million in Q1 2013 from DKK 1,424 million in Q1 2012. Excluding FX movements, revenue increased by 41.2%, volume increased by 35%, and the average selling price increased from 126 DKK to 131 DKK. Provision for returns at the end of Q1 2013 was unchanged from end of 2012 in revenue value corresponding to approximately 9% of 12 months' rolling revenue. 79% of our revenue in Q1 2013 was from branded distribution.
From the chart in the bottom left of this slide, you clearly see the trend in increase in branded sales from being in the 60s in 2010 to now being around the 80% as a result of our strategic focus on these channels. Now please turn to slide 10, which looks at the development in our distribution network. The total number of points of sale decreased by 131 in Q1 2013 compared to Q4 2012 to a total of 10,243 points of sale globally. In the same period, we added 19 new concept stores and a net total of 5 branded points of sale. The majority of the concept store openings were in the AmHenrikas and Russia. Please turn to slide 11.
Looking at the product mix, in Q1 2013, revenue from charms increased by 33.9% compared to the same period last year, while revenue from silver and gold charms bracelets was up 34.7%. These categories together represent 85.6% of revenue versus 89.8% in Q1 2012, which, however, was impacted by the stock balancing campaign. As Bjørn mentioned, our new product launches continue to be very successful, with many charms on our bestseller list being from releases in Q4 2012 and Q1 2013. Rings increased by 42.2% and represented 5.9% of total revenue in Q1 2013. Our new rings releases continue to perform very well. When comparing performance for rings to Q1 2012, it should be remembered that Q1 2012 was impacted by the stock balancing campaign, where many rings were returned.
The growth in the other jewelry category is mainly coming from earrings as well as bracelets that are not reported in the traditional gold and silver charms bracelet category. The other jewelry category was also in Q1 2012 impacted by the stock balancing campaign. Please turn to slide 12. Gross profit was DKK 1,314 million in Q1 2013 compared to DKK 1,020 million in the same period last year, resulting in a gross margin of 65.6% in Q1 2013 compared to 71.6% last year. The decrease compared to last year was due to increasing raw material prices as well as the change in U.S. import duties. Excluding our hedging and the time lag effect from our inventory, the underlying gross margin in Q1 2013 would have been approximately 67% 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 approximately 2-3 percentage points. Please turn to slide 13. The OPEX ratio for the quarter was 35.7% compared to 46.8% for Q1 2012. The decrease was primarily driven by higher revenue. Sales, distribution, and marketing costs were DKK 509 million. Sales and distribution expenses increased to DKK 316 million in Q1 2013 compared to DKK 286 million in Q1 2012, which is mainly driven by entry into new markets and a higher share of owned and operated stores. Marketing costs increased to DKK 193 million from DKK 169 million in Q1 2012, primarily due to an increase in our marketing spending in the U.S. Administrative expenses decreased to DKK 206 million from DKK 212 million for the same period last year. Please turn to slide 14.
EBITDA for Q1 2013 increased by 60.3% to DKK 643 million, resulting in an EBITDA margin of 32.1% compared to 28.2% in Q1 last year. The improvement in EBITDA margin is primarily due to increasing revenue. EBITDA margin in the AmHenrikas was impacted by the general decrease in gross margin as well as the local impact from the reintroduction of import duties, as previously mentioned. The EBITDA margin in Europe and Asia-Pacific is mainly driven by increased revenue. Unallocated costs were 7.6% of revenue in Q1 2013 compared to 7.5% in Q1 2012. Please turn to slide 15. For the quarter, net financial expenses amounted to DKK 58 million, significantly impacted by FX. The corresponding figure last year was positively impacted by FX. Income tax expenses were DKK 103 million in Q1 2013, implying an effective tax rate of 19%, which is in line with our guidance for the year.
Reported net profit increased by 29.6% to DKK 438 million in Q1 2013 compared to a net profit of DKK 338 million in Q1 2012. Now please turn to slide 16. In Q1 2013, we generated a Free Cash Flow of DKK 406 million, corresponding to a cash conversion of 92.7% compared to 34.9% in Q1 2012. Operating working capital at the end of Q1 2013 was 26.9% of last 12 months' revenue compared to 35.2% at the end of Q1 2012 and 30.7% at the end of Q4 2012. Inventory decreased significantly to DKK 1,396 million at the end of Q1 2013 from DKK 1,668 million at the end of Q1 2012, but increased by DKK 78 million versus Q4 2012. The significant decrease in inventory level can be explained by improved inventory management and remelting of obsolete inventory from the 2012 stock balancing campaign.
The increase from Q4 2012 is mainly due to seasonality. Trade receivables decreased to DKK 724 million in Q1 2013, corresponding to 10% of the preceding 12 months' revenue from DKK 940 million in Q4 2012, which corresponds to 14.1% of preceding 12 months' revenue. For the quarter, CapEx was DKK 246 million, primarily impacted by the investment in IP rights from Trollbeads of DKK 119 million. Total interest-bearing debt was DKK 414 million at the end of Q1 2013 compared to DKK 977 million at the end of Q1 2012. Cash and short-term deposits amounted to DKK 222 million at the end of Q1 2013 compared to DKK 231 million at the end of Q1 2012. And finally, we had a net interest-bearing debt by the end of Q1 2013 of DKK 192 million, corresponding to -0.1 net interest-bearing debt to EBITDA compared to 0.4 net interest-bearing debt to EBITDA at the end of Q1 2012.
With this, I'd like to hand back to Bjørn to conclude the presentation.
Thank you, Henrik. So if you look at slide 17, we can say group revenue was up more than 40%. We had strong performance from newly launched products. Our gross margin was 65.6%. Our EBITDA margin was 32.1%. Our free cash flow was DKK 406 million. Our guidance is unchanged with revenue for 2013 expected to be above DKK 7.2 billion and with an EBITDA margin above 25%. Our share buyback of up to DKK 700 million in 2013 is on track. And I think it's fair to say we feel the business is on track and the focus continues to be on the consumer, the product, and sales out. Thank you. This concludes our presentation, and Henrik and I would now like to open up for any question you might have. Operator, please.
Thank you. If you wish to ask a question, please press star one. Your first question comes from Michael Rasmussen. Please go ahead.
Good morning, everybody, and very well done, guys. Three questions, please. I'd like to start off by talking a little bit on the Concept Store openings. I'm a little bit puzzled by you only posting 19 Concept Store openings in the quarter. I think the historical run rate has been between 30 and 70-ish per quarter, and is this going to pick up over the next couple of quarters, please? Secondly, I would like to talk a little bit about China and Asia. It looks like you have had a net closure of two stores in China, and also if you give us an update on the Asian strategy, how that looks at the moment. Finally, I'd like to hear a little bit about the current performance on new products.
These new charms collection that you were talking about, can you give us a little bit more insight in terms of how that is in terms of pricing? Do you expect that to cannibalize some of your existing products, and if it's a focus to any specific region or just a general update on this new concept? Thank you very much.
Well, Michael, there were many questions. Hot start. Concept Stores 19. If you remember, at the end of Q4, we actually opened a lot more stores than we expected to, so we ended the year higher than what we guided for. I explained to you that many of those openings in Q4 were actually Q1 planned openings that were actually opening earlier than we expected. So there's nothing different in our opening of stores. We are good in the way of reaching around 150, and the Q1 numbers is just because we actually opened many of them in Q4. When it gets to Asia, it's good to see that our stores in Hong Kong are doing extremely well, and as you also saw, some of the smaller markets are doing extremely well. The review that we did caused us to change our partner in Japan.
We reported on that last time, and that is in the process as we speak. The new partner, Bluebell, is in and is starting to open new stores. When it gets to China, we still have 42 stores, half of them being Concept Stores and half of them being Shop-in-Shops. I think it's 40 it's down to. And in the review, last time I said that about half of them were identified to be good and the other half not so good. Our new team has now gone through all the stores again, and the good thing is that the good stores are increasing. So now we are down to about 10 of them being classified as not being good, and two of those have already been closed.
And I think what will happen the rest of the year is that we will try to close down the not-so-good stores and then replace them with better stores. So you should expect the store count to stay approximately the same during the year. I can report that the new team that are working on China is actually much, much more positive, and also including myself. So I hope that during the next two quarters, we can talk a little bit more about China because we see some progress already. Your third question, I think, was linked to the new concept of charms and bracelets that we have talked about and that we're going to launch for Christmas. That means into the trade in November.
That is in line with what we said all the time, that charms and bracelets is our core, and we need innovations in our core. We will launch a new concept with a different bracelet and then charms that fit that bracelet so that we don't only have one concept. About how it looks and more details about it, we will get back to when we're actually launching it to the trade. I don't think I will say anything more about that at this time.
But Bjørn, can you reveal anything in terms of pricing or raw material content and implicit margins on this?
Well, I think it will be in the commercial price points that Pandora already is, and it will be genuine metal, so it will be silver or gold, and it will be in the core of what we're doing. Price points for each individual item, we will come back to when we launch the concept to the trade.
Okay. Thank you very much, guys.
Okay.
Thank you. Your next question comes from Lars Topholm. Please go ahead.
Yes. Congrats with a good quarter. I have a couple of questions. First, I can see your average price per transaction is up 4%. I wonder if you can add some more comments to that. Is this something you are actively working on? How do you see this develop going forward? Is this something which happened in the beginning of the quarter or toward the end of the quarter? How should we see that? Then a second question is on provisions, which we discussed a lot after Q4. I wonder if you can put some words on how much provisioning you made during the quarter in percentage of revenue and also in actual numbers, and also likewise, how many provisions you reversed during that quarter. Then a final question would be on your operating costs.
After Q4, Bjørn, I think you indicated you saw marketing costs more or less flat in 2013 compared to 2012. Now they are clearly up in Q1. I wonder how you see that same question today. Thank you.
First of all, average price being up 4% is not per transaction. It's per unit. We don't give it on transaction. I think it's fair to say that what we're trying is to feed the pipeline with products that is in our commercial price points and what the consumer's demanding. And therefore, I feel that the price you're looking at now is a healthy one. Of course, I think any brand would like to have average price going slowly up, but I think lessons learned from 2011 is that we're very, very careful by trying to put average price up. So this 4% is actually a result of what the consumer is pulling and not what we are pushing in. If you want my guess, I think the average price we have now is a fair price to work on going forward.
Oh, okay. So that means for the coming quarter, we should also just assume 4% higher than last year and nothing accelerated here?
You should not look for an acceleration. Correct.
Okay.
When it gets to the provisions, what we said is that we looked at provisions going into the year being 9% of revenue, and going out of the quarter, we're also looking at 9% of the revenue. So if you do the simple math, it means that you're taking 9% of the growth in revenue. That's the additional provisions that you don't for the quarter.
And then when actual provisions increase on the balance sheet, it's correct to assume that actual returns are still well below what you provision for?
Well, as I said to you last time, we spoke about this. The actual returns will vary from quarter to quarter. There's no indication in our model that our provision levels should change. That's why we stick to the 9%. You have to look upon the returns over time, and you can't just look at it from a month to month, from a quarter to quarter. So to simplify it, it's 9% going in, it's 9% going out, and the returns that we actually have received have not made us change any of the assumptions.
Okay. Thank you.
Last question, I think, was on the marketing cost where I said that I think we can get more out of the buck, meaning that we, on the same level of spending, can get more, what should I say, usage of our marketing. Nothing has changed in that. I think when I talked about the level, I talked about the annualized level on a full year and not necessarily on a quarter by quarter.
Yeah, of course.
Timing of marketing has to do with events. And as you probably know, I mean, Easter was in Q1, and we had Easter campaigns going on. So there are some shifts in when we spend it. There is no change in our assumption that we can work on the same absolute level in marketing as we did in 2012.
Oh, okay. Thank you very much.
You're welcome.
Thank you. Your next question comes from Niels Leth. Please go ahead.
Yes. Hello. Good morning. First question on your price policy. Now that gold and silver prices have dropped quite significantly, do you expect to drop down your sales prices by the same magnitude in your coming collections? Second question is regarding the stock building, which seems to have taken place in quarter one, given that your sell-in has been higher than the sell-out numbers. Could you provide a little bit of color to the sell-out numbers into quarter two? Have we seen the same momentum in the beginning of quarter two as we saw in quarter one? And then just a final question on the European market where you will allow retailers to run sale campaigns. Are we going to see any significant campaigning in Europe that will have an impact on your pricing in quarter two? Thank you.
Pricing policy, gold and silver prices: we have no plans of changing any retail prices based on the current metal prices, so that stays. Stock building from Q1 to Q2 is a normal seasonal buildup from Q4 to Q1. I think I've said before that running the business at the level below where we currently are, DKK 14 billion-DKK 15 billion, we shouldn't do. So I would say that our inventory is very healthy, and we're very happy with where the inventory is. Q2 sell-out numbers: we talked about Q1s. I'm not going to say anything about Q2 sell-out numbers. The last thing was European market sales. We said that we will go on sales with discontinued items in the normal sales periods, which are Q1, meaning in January, and Q3 in August. We had our first sales in January, and we're very happy with the way that developed.
Retailers were happy. We were happy, so we will continue with that. The next sales will then be end of July, beginning of August.
Okay. Could you just then finally comment on your Valentine's collection? Has that been sold out in all your markets, or are you planning to basically take some of that stock back in quarter two?
No. I mean, we will not take anything back. I can promise you that. I think Valentine's is a good product because it doesn't only sell to Valentine's. Valentine is about love, and the symbol alone are hearts, and that sells all year. So the Valentine's collection sold in very well in the beginning of the year, sold out very well to Valentine's, but it's also continuing to sell. So we're even replenishing on that line, and many of those design variations are now part of our core, and are continuing to sell at a very, very high rate. So there's nothing to be taken back of new products.
Okay. Thank you.
You're welcome.
Thank you. Your next question comes from Dan Wejse. Please go ahead.
Yes. Hello. Dan Wejse from Nordea Markets. One question, or actually a number of questions, regarding your store openings and closings. If I look at your direct operated stores, they continue up, and now it appears that 18% of the stores that you have are concept stores in Europe. It's actually your own and operated. Please tell us and talk about what is actually going on there. And secondly, on Asia, it's down from 31 or 33. You have restated compared to Q4, but now to 27. It's China, but it is also Australia or what is going on there, and also Italy. We saw a decrease there.
So a general update on owner-operated stores and also on your stores in Italy, and lastly, on your third-party markets where you actually continue to increase the number of stores, but it puzzles me because revenue is very low per store in these markets. And then maybe follow up later on the U.S., but firstly, on the stores.
Well, there's no strategy change on owner-operated. We are basically opening owner-operated in those two markets where we establish our brand, and that is currently in Italy and France, in Hong Kong, and certain areas of Germany. I think the revenue part of owner-operated has been very stable. It's about 10% of our revenue, so there is no change in anything on that side. And then the next question, Henrik.
There was a question on Asia in terms of the concept stores that you see the owner-operated going down. That's basically, you could say, maybe improved that we don't necessarily hold all stores permanently. So what has happened in Australia, for instance, is that when new franchisees want to open stores in a certain area, we sort of try to cluster ownership in certain areas. So we actually have examples in Australia where we handed over stores or basically sold off stores to franchisees, and that's the movement you see in the concept store in Asia-Pacific, those three stores.
Okay. And then third-party markets, we still see an increase, though revenue is very low.
Well, yes. That's all there is to say. You have to remember when you look at Europe and do average, Europe is probably the most challenging region to look at from an average revenue perspective because that's a mix of directly operated and distributor markets. Even with Russia, that we do report as directly operated, they effectively are priced like a distributor because we deal directly with the retailer, but basically, it's the distributor operating the stores. So Europe is difficult from an average price or average revenue perspective when you look at the doors.
It's just that you give the number, and when you look at that, you actually see that by distributor, the revenue per third-party distributor is something like DKK 40,000 per store in the quarter, and it has been extremely low since you were hit by the downturn in 2011. So I'm just curious on why there's actually openings in these markets.
Well, don't forget that distributor markets work in a way that the distributor buys from us. So we sell to him, and then he distributes the product into his stores or the stores in the market. And that means that the orders from us are being delivered on a very, what should I say, common goal basis, and that's why when you do the averages dividing our sales, then on the stores, you get very strange numbers. So that's the reason for it, and that's the way it is.
Okay. Then turn to the U.S. You said that U.S. marketing was increased. Is that a reason? Is that an Easter effect, or is it a general increase? And then why did you actually increase it? And also, is that one of the drivers behind the strong like-for-like growth in the U.S.?
Well, I think when you look at marketing, we plan all markets during the full year. So first of all, the quote that I made that we should spend the same absolute is over full 12 months. And then the timing of marketing and when you book it has to do with when are you doing creatives and when are you in media. So you shouldn't always read out of a quarterly number. The only big change in the marketing spend was, of course, that Easter was in Q1 and not in Q2. And in the U.S., we have actually spent more on the West Coast. I mean, you know our discussion about improving our performance on the West Coast, so there has been an increase in the spend on the West Coast.
But again, at the end of the year, our plans are to spend the same, but as you know, with a different mix and more on media and less on creative. So I don't think there is anything to read into those numbers that is different than what we said three months ago.
Okay. Thanks.
Thank you. Your next question comes from [Clements] Bundschuh. Please go ahead.
Yes. Hello. Could you tell us a little bit more how it went with the e-store in the UK?
Yes. We launched that, as you know, in November, and we had a very good development after Christmas. That trend has continued during Q1, and we are now in the process of piloting a second store in a second European market, which will go live at the end of this quarter or beginning of third. It depends on when things are ready. We feel that our assumptions that, A, our product is very online sellable, B, it will have low returns compared to other markets, and therefore, being profitable is still the case. Therefore, we are very optimistic about rolling this out in more markets and are in the process of doing what we call an online footprint in all markets to then come up with a plan.
We don't want to report isolated online yet because we think we should at least have a year's time so we have some comparables, but we are exactly where we hope to be 3 months and 6 months ago.
Thanks.
Thank you. Your next question comes from Chiara Battistini. Please go ahead.
Hi there. Congratulations for the great numbers today. A couple of questions from me. First, I was wondering whether you could provide any early indication on the hedging for next year and whether you hedge more than usual for next year given the move in the commodity prices. So I see on Bloomberg, right now, consensus is for 68.3% gross margin for next year, and the underlying in quarter one was 67%. So I was wondering if you're happy with the 68.3% or you envisage a gross margin more towards 69.5%-70% given the move in the commodities. And then the second question was on the Easter timing, if you could give some color on the positive impact you had in quarter one and what we should expect as a negative impact for quarter two.
Finally, on the guidance, despite the very strong bid today, you are confirming the guidance for 2013, which is fairly conservative given where you're tracking on the back of quarter one numbers. Are you expecting an acceleration, or are you just being conservative? Thanks a lot.
Well, your first question about gross margin next year, that's too early to talk about. We are not going to guide on 2014 where we are, so I can't give you the answer to that.
But in terms of hedging, just to add to that, I mean, we are hedging in accordance with our policy. We stick to that. We don't believe that we're smarter than the market, so we basically stick to that very methodological approach that we've always applied.
There's no plans of changing in the retail prices. You will have to work with that. When it gets to the impact of Easter, there's many theories on this. We know that Easter is a big event for many industries, but we also know that the weather running up to Easter was terrible. So I mean, some of the business that you are looking at was not happy with Easter. We were happy with Easter, and as I said in my speech earlier, I think actually the weather was bad. We gained from it compared to other industries. To quantify that is impossible. I mean, we think we had very, very good numbers in Q1, and we think some of that is because of the shift in Easter, and some it might have to do with the weather. But to quantify this is impossible.
When it gets to the guidance, we have one quarter in our book. That's where we are, and we felt at this point in time, confirming the guidance is what we should do.
Okay. Okay. Thanks a lot.
You're welcome.
Thank you. Your next question comes from Kenneth Leiling. Please go ahead.
Yes. Thank you, Kenneth Leiling. Yeah. One question is around the category you call other jewelry. It developed very strongly here in Q1, up around DKK 100 million versus the same quarter last year. So can you just give us a bit of background as to why that is and whether it's a specific region where this category is moving so fast? And then the next question is on this new bracelet charms concept product line. Did I hear you correctly that it will only impact your sales, your reported sales, as of Q4, or how did you mean the comment about it hitting the trade in November, I think you said? Thank you.
Well, I'll start with the second first. Yes. It is being launched into the trade in November, so it hits our revenue in Q4, and it's meant to be a major thing for Christmas for the Concept Stores. So you are right. It will be in our revenue for Q4. When it gets to the other jewelry category, then that is actually different types of jewelry that has done well. It is a couple of bracelets that are not linked to the bracelet charms category, the Leather Bracelets. It's a bangle in there. And then we actually had quite some momentum on Earrings that were doing very well.
I think I said to you three months ago that we are trying not to be very innovative in earrings, that we have found the most commercial product that we can have in our stores, and they have actually done very well both in the sell-in and sell-out in Q1, and that's why you have these percentage increases, so.
So how do you feel about the you could call it the absolute level of sales in that category? I mean, is that a level that necessarily would have to drop in the coming quarters? I mean, is there something one-offish in that number here in the first quarter?
Well, I think important is that we are not going away from saying that we believe that charms and bracelets and innovation in that category is priority number 1, and then rings are priority number two. Then it is, of course, for a company like ours to have all these points of sale, and we are experts in jewelry, that you will also like to be in the earrings category, and you will like to be in the necklaces category and in the other bracelets category, and that you will always have new product also being fed into that category. To give you a number on what that should be, I can't because we don't even plan like that.
We see that when we have good marketing, good in-store execution, and we have commercial products, then we sell them, and therefore, there's no reason why we also shouldn't have growth in earrings. But as you know, when you set priorities, you can't prioritize everything as number one, and that's why we stick to our strategy. We stick to our priority, but then, of course, we take every sale we can do from a sell-out basis also in other categories. So it's the same rule. The better product you make, the more you sell, and it looks like we found also in those categories now certain successes that we might not have had a year ago.
One of the things we did do on the earring category is launching what we call a barrel that makes it possible for you to wear the charms on an earring, and that has had some effect in that specific quarter. But you will see fluctuations in this category from quarter to quarter. It's a small number after all out of the total number.
Yeah. Sure. It's just a big part of the growth. That's why I'm asking.
Yeah.
Yeah. Final question is, I mean, how did your decision to start discounting your product more in the traditional January sales? Do you have any insight into how that has helped the like-for-like growth here in the first quarter?
Well, I think as we said when we told you about this decision, it was actually requested from the retailers. The retailers in Europe wanted to have a package of discontinued items that they could discount in the sales period, and the feedback from the retailers were very positive, and they were happy that we did it. And I think personally that it pulled people into our stores. Then when you look at the performance of these products, it's very big variations between different markets, but all in all, we felt that it helped not only in January, but it helped probably in the whole quarter, and it put a positive atmosphere between us and the European retailers. So I would put that in the book as only being positive.
Yeah. But is there a reason to assume that your like-for-like sales growth might decline somewhat from the very strong Q1 level because, well, you won't be doing discounts in Q2? You won't have sort of an easy comparison or whatever you choose to call it here in the second quarter?
Well, that's a difficult question to answer, to be honest. I don't know. I think we are trying from a month to month to always do the best in retail in January. It's a sales-out month, and that's why we decided to discount. If you look at the U.S. numbers, they were also very strong on the sell-out basis, and they did not discount. So I mean, you can draw your conclusions the way you want. I think that discounting in the period where you have sales-out but again, only on a limited amount of SKUs. I mean, this is important that we don't think that we're discounting everything. It's a very, very small number of items.
I think it's a good strategy in today's retail, and we will do it at the end of the summer season, end of July, beginning of August, and then we will draw the conclusions together with the markets and the retailers from season to season. But right now, I don't see any reason why we should change it. The impact, I can't isolate for you, but I think it has a positive all-over effect.
Okay. Great. Thanks a lot for your help.
You're welcome.
Thank you. Your next question comes from Jesper Christensen. Please go ahead.
Yes. Hello there, and congratulations with a good result. Just a question on the metal content in your sales. It's my understanding that you are selling more and more silver, and based on your nice pictures here in the presentation, it's all about silver. But you could perhaps elaborate on the distribution between gold and silver. Is it 50/50 or 70/30 now, please?
I think we have said that our core is, of course, silver, and the price points, affordable luxury points us in the direction of silver. It's kind of obvious. If you look at the value of our distribution, not the units sold but the value, you're looking at the split between 70/30 and 75/25. That's where we are. But as you know, the gold items are much, much, much more expensive, so if you look at units, the split is totally different. We believe that our core is silver, and that's where we should put our focus. But then we also need aspirational pieces for the people who want that, and that's why we on a very focused basis in the categories also always will have a gold offering.
Important is that we don't get carried away and that we put that pyramid upside down, which we did for a while in 2011, so it gets out of balance. The good thing is that by measuring the sales out on a SKU level, we see what is working and not working, and therefore, the danger of doing too much gold shouldn't be there.
Thank you.
Thank you. As a reminder, if you wish to ask a question, it's star one. Your next question comes from Silvia Cuneo. Please go ahead.
Good morning. Thank you very much for taking my question. My question is regarding the seasonality of the operations. In the press release, you're highlighting that historically, a higher revenue was realized in the second half of the year, but you have changed the drop structure from two to seven drops annually, and you're stating in the release that this might change the seasonality of revenues for FY13. I just would like to find out a bit more about these drops. Are these drops the same size? How are they distributed over the year? And how much of your strong performance in Q1 is attributable to this change in the drop structure? Thank you.
Well, I think what we said is that we learn from other industries, especially from the fashion, where they are launching products many times a year to get freshness in and also actually to reduce risk. We looked at the events during the year and identified that you basically have seven events during the year where you need to launch product for, and that's why we have divided our collection build-out into seven drops. The absolute number of new SKUs in the year has not increased. We are still launching between 200 and 250 new design variations, but instead of doing two times 120, 125, we are now doing seven times 35. So I do think that what we've done is dividing the risk for the retailer so he doesn't have to front-load and order two big drops. He can now order seven drops to the different events.
We give the designers and the merchandiser the possibility to react on what is happening, so if something is not working in drop one, they can actually correct the direction for drops three, four, and five. When it gets to the revenue distribution, hopefully, that will even out because product is needed for the different events, and the event doesn't change. I mean, Mother's Day is an event. Easter is an event. Valentine's is an event, and so forth. So we feel that this is the right way of doing it. We are annualizing this now in the summer. That's when we actually have done seven drops. And our experience is that this is working and that we feel very comfortable going forward in the same logic.
Thank you.
You're welcome.
Thank you. There are no further questions at this time. Please continue.
Thank you very much, and see you soon.
Thank you. That does conclude your conference for today. Thank you for participating. You may now disconnect.