Customers that come into our stores have already learned about lab-grown diamonds...
Read the transcript below...
- 00:00You’ve increased your revenue guidance. Things are looking fairly good in the
- 00:03numbers. Your stock’s down just a little bit.
- 00:05Walk us through where you see the strength in your business.
- 00:10So sometimes when I come home from these earnings calls, my wife asks me, So why
- 00:15did the share price go down when you posted good numbers?
- 00:17And my answer is always, I don’t know. It’s strange, but somehow it’s what it
- 00:24is. But if you then kind of look at what
- 00:26we’re actually doing is we are strengthening our brand everywhere.
- 00:32We are gaining market share everywhere. We’re generating more and more traffic
- 00:36into the brand which we’re converting and therefore our sales numbers are what
- 00:41they are and also gives us now the strength to increase the guidance.
- 00:44So from my vantage point, the brand is in really good health.
- 00:49We are kind of pleasing more and more customers.
- 00:51The new strategy that we have deployed last year on trying to pivot us from
- 00:56being just associated with charms into being recognized as a full global
- 01:00jewelry brand is working really well. Our core business continues to grow at a
- 01:06good clip. The moments business was up 3%, which is
- 01:09still the the majority of our collection of business.
- 01:13But then we’re posting close to 30% like for like growth on kind of what’s part
- 01:18of being this full jewelry brand is about.
- 01:22So. So strategy is working.
- 01:24Customers like it. The brand is strong.
- 01:27What’s not to like? Well, Alexander, the criticism of that
- 01:32as great is this, that you’re leaning into that brand momentum?
- 01:34Is that brand momentum is the only thing driving the sale.
- 01:37So if you see a more macroeconomic downturn, a more a more kind of clear
- 01:42slowing of the global economy, not just in the States but in China as well,
- 01:46where of course, your business perhaps hasn’t seen the turnaround that other
- 01:49luxury makers have. That’s where the Achilles heel of the
- 01:52business would be. What would you say to that?
- 01:53That if the macroeconomic turns to the downside more aggressively than we’ve
- 01:57seen, how can Pandora cope if they’re really only leaning on that brand
- 02:01momentum? Well, if you go back in the last few
- 02:05years, we’ve had Covid, we’ve had recession or whatever we want to call
- 02:11it. And depending on where you are in the
- 02:12world. Inflation going up, interest rates going
- 02:15up, discretionary spending being under pressure.
- 02:18Throughout this entire period, we’ve just become stronger and stronger and
- 02:22our growth has has kept on increasing. So that would be the best.
- 02:27Normally, you know, a good way to predict the future is a little bit to
- 02:30look what’s happened in the past. So so with that thing, I would argue
- 02:35that we stand really strong even if things get worse from here.
- 02:39But the reality is, in the last two years, there’s been a lot of talk about
- 02:42things in the macro getting worse. And in reality, they really haven’t.
- 02:46Now, the jewelry market, if I look at it a little bit closer in, has probably not
- 02:51been growing in the last two years. But despite this, our business has been
- 02:55in growing. And in fact, in the last five years, the
- 02:58business of Pandora has grown 50% during what you would argue has been a quite
- 03:03volatile period in this economic cycle. So I think the brand stands really,
- 03:08really on firm ground here. Alexander.
- 03:13Good morning. It’s Guy.
- 03:14You say in your note, though, the jury market has historically grown faster
- 03:17than GDP. Does that trend still work in this
- 03:20current environment? No.
- 03:24As I said, I think based on the data we see and you know, it is quite difficult
- 03:30to read the markets. There is no good one source of this
- 03:33information. So we have to triangulate a little bit.
- 03:35But if I look at the totality of it, it does suggest that the jury market has
- 03:40that 3 to 4% guard that we saw pre-pandemic in the last ten years, that
- 03:45that has not been the case so far. But what you should also remember here
- 03:49is our market share is less than 2% of the global market share.
- 03:54So from a Pandora standpoint, the runway for growth is large.
- 03:58So there’s still space. You will always have winners and losers,
- 04:01even in a shrinking marketplace. You talk, you go on, that sentence
- 04:05continues. The jury market remains highly
- 04:09fragmented. As you say, you’ve only got roughly
- 04:11circa 2% of the market. Do you do you take more market share?
- 04:15Is that an organic strategy? Is there an M&A strategy that goes with
- 04:19that? Can you grow faster via other means
- 04:22other than simply just growing organically?
- 04:25So so the current strategy which we detailed out last fall, is purely an
- 04:31organic growth strategy. And and that’s let’s say that’s a quite
- 04:36safe way to grow M&A. As we know, 5 to 6 M&A typically do not
- 04:42drive shareholder value. Then you might have two that are kind of
- 04:45neutral and two that actually generate, you know, positive shareholder value.
- 04:50So so an M&A strand is more risky than an organic.
- 04:54We know what we’re doing. We’re currently been building market
- 04:57share and strengthening this brand for a while.
- 04:59So the type of growth rates that we’ve promised, the market should drive quite
- 05:03attractive EPS growth in the mid-teens. That’s sits in our current guidance.
- 05:09And we think that’s a that’s a very interesting proposition in particular
- 05:12also when you have this type of macro. What I also think people shouldn’t lose
- 05:16sight of, if you look at the reporting from our luxury peers in the last
- 05:19quarter in particular, we are at the top of that pile.
- 05:22So there’s something good happening around our business.
- 05:26Alexandra, good morning. Can I ask you about lab made diamonds?
- 05:30I understand that these lab grown alternatives now account for around 20%
- 05:35of the global market. How big do you think that percentage can
- 05:39be? So we are now on speculative ground.
- 05:44But what I would start off by saying is a diamond is a diamond regardless
- 05:48whether it comes from the mine or whether it comes from the lab.
- 05:52The final product is a 100% carbon product.
- 05:56The way we do it, of course, means that you can produce this at a vastly lower
- 06:01cost. It has less of a CO2 impact.
- 06:04So, you know, taking up in mined diamond is probably 160 kilos of CO2 emissions.
- 06:10Doing it in the lab is eight or nine kilos is less than 5%.
- 06:13So you have less pressure on on the environment at a lower production cost,
- 06:18which leads to a value proposition that can be quite attractive.
- 06:22Those factors will drive a massive transformation in this market.
- 06:27So ten years on, my prediction is that the vast majority of of diamonds being
- 06:32sold are going to be lab grown. So I think we’re in front of a big, big
- 06:37transformation here based on a technological revolution that’s
- 06:40happened. Yes.
- 06:41Yes. Really fascinating one.
- 06:43And if you can grow diamonds in the lab, what else can you can you grow in the
- 06:46lab? A conversation perhaps for other guests.
- 06:48But thinking about the marketing of these and how they’re going down with
- 06:51customers. Alexandra, what can you tell us about
- 06:53consumer perceptions? I mean, you think about diamonds, you
- 06:57think about romance. I’m not sure the name Lab Grown makes me
- 07:00think about romance. So how does that argument go down with
- 07:03consumers? Okay, so there are two drivers of the
- 07:09purchase in in this category when it comes to a product choice.
- 07:13So when you walk into a jewelry store, you will be looking at, is there a
- 07:17design that appeals to me and does this fit my wallet?
- 07:21Those are the two main criteria people use.
- 07:25And so therefore, we don’t see that there’s any different way of selling
- 07:30this versus other finished jewelry, let’s say in our stores, it’s the same
- 07:36approach. The customers that that come in, they’ve
- 07:39already read up on. On the topic of lab grown versus mined.
- 07:43So this actually not a big debate in the store.
- 07:45It becomes more of a traditional way of selling a piece of jewelry.
- 07:49Is it beautiful? Do I like the design?
- 07:51Does it kind of, you know, speak to me in terms of the value I’m looking for
- 07:55and is the price. Right.
- 07:57And we go from there. Well, Alexander, so much of that
- 08:01pricing, though, is dependent on on the capacity restraints.
- 08:04I’m curious what you’re seeing on that front.
- 08:06You’ll see some of the other kind of players in the industry talk about those
- 08:10kind of issues. Can you walk us through kind of the
- 08:12start to finish of of how that affects your pricing and what kind of time and
- 08:16delays and lags we’re looking at? Okay.
- 08:21I’m we are not in the mind business, so you probably have to to chat with the
- 08:26bears of this world to do and for them to explain how their value chain works.
- 08:32What happens in my world is that, of course, I can kind of generate products
- 08:38that I can go to market with, which has a completely different value equation
- 08:42than than what the mind people do. So I think that’s probably the best way
- 08:46to answer your question. So have a chat with those fellows
- 08:51because their value chain is obviously more complex because of the way they
- 08:55produce it than ours is. Alexander Can you keep can you generate
- 09:01or obtain higher end customers while keeping your lower end customers?
- 09:06Do these are these two things are these two things manageable?
- 09:09You can keep the brand perception for both of these two groups because as you
- 09:13take, we take the market up into the main segment, sorry, into the lab grown
- 09:17segment, you’re producing more diamonds, you’ve got a higher value proposition.
- 09:20Is that going to undermine your traditional customer at Pandora?
- 09:24How does that how does that value proposition work all the way through the
- 09:28scale of people spending? Yeah.
- 09:31So so the first thing to say is that the mission of Pandora is to democratize the
- 09:37jewelry space. That’s the journey this company has been
- 09:40on in the last, well, two and a half decades.
- 09:43And in the initial path of that was to use silver instead of gold.
- 09:48And therefore you can reach a very different value equation.
- 09:50And that’s been the basis of where Pandora is today.
- 09:55And everything we do is targeting the middle of the market.
- 10:00So of course we are very inclusive brand.
- 10:02It doesn’t matter, you know, from from where you come, of course.
- 10:05But my target audience is an average income household and it going to remain
- 10:11being that household. Now, if you look at that customer base,
- 10:15they would all and all many of them would desire to to own a piece of
- 10:19diamond. But in mine, diamond is too expensive
- 10:21for them. So that that’s out of reach.
- 10:24So again, we’re going back to our mission statement is saying, okay, is
- 10:27there a place here which we can democratize this space?
- 10:30And with lab grown diamond, it offered the different value equation.
- 10:33And so therefore I can offer this to my audience.
- 10:36So my my objective is with the lab grown diamonds to offer diamonds for the mass
- 10:43mass market. And therefore, I’m not chasing the
- 10:47higher end customer. Of course, they’re more than welcome to
- 10:50come to Pandora as well, and some of them do.
- 10:52But my main focus is the mass of the market.
