High Flying Pandora Returns to Earth with No Growth in 2011 Revenue

A tumultuous year for Pandora came to an end after a 10-percent drop in revenue for the fourth quarter, leaving the jewelry manufacturer and designer with a 0.1 percent decrease in group revenue to 6.65 billion Danish kroner ($1.18 billion) in 2011.

This is a far cry from the spectacular results the company, known for its silver charm jewelry, reported from 2009 until the mid-year of 2011. The bottom dropped out for the fast-growing brand—a darling of investors, retailers and consumers—with a second-quarter report released in August where the company changed its outlook from expecting a revenue growth of no less than 30 percent for 2011 and an EBITDA margin of minimum 40 percent with flat revenue and EBITDA margins in the low thirties for the year. This report resulted in the immediate resignation of its CEO, Mikkel Vendelin Olesen, and a one-day 65 percent drop in the value of its stock.

The company also announced Tuesday that it has begun a campaign to buy back unsold stock from retailers for the first two quarters of the fiscal year that will negatively affect 2012 results. The company estimates that the campaign will cost 500 million to 800 million Danish kroner.

“The campaign will encourage Pandora retailers to exchange discontinued, merchandise for appropriately priced best-sellers, on a one-for-one basis,” the company said. “(It) will likely generate a corresponding negative impact, due to cannibalization of forward sales, on reported numbers across the whole of 2012.”

Among Pandora’s results for 2011:

* Sales in Americas increased 7.9 percent (12.4 percent in local currency);

* Sales in Europe fell 8.3 percent (down 7.7 percent in local currency);

* Sales in Asia Pacific decreased by 0.2 percent (down 4.3 percent in local currency);

* Gross margin increased to 73 percent in 2011 compared to 70.9 percent in 2010;

* EBITDA margin was 34.3 percent in 2011 compared to 40.3 percent in 2010;

*EBITDA decreased by 15 percent to 2.28 billion Danish kroner ($406,503 million);

* EBIT margin was 30.9 percent in 2011 compared to 36.2 percent in 2010;

 EBIT decreased by 14.8 percent to DKK 2.05 billion Danish kroner ($366,323 million);

* Reported net profit increased by 8.9 percent to DKK 2.03 billion ($362,684 million) in 2011. Adjusted for a revaluation of the CWE earn-out provision based on a revised outlook for PANDORA CWE, 2011 net profit decreased 18.4 percent to 1.52 billion Danish kroner ($247,228 million).

In its outlook, Pandora it expects 2012 revenue growth to be in mid-single digits; gross margin in the low 60s, driven by the impact of commodities prices and a reduction in our selling prices; and EBITDA margin in the mid 20s.

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Pandora Jewelry Returns to Strong Profit And Growth

Pandora—whose short history as a publicly traded company was marked by spectacular growth followed by an even more spectacular fall—is back on track dramatically increasing its sales and profit for the first quarter of 2013.

The Danish company, known for its popular charm bracelets, said Tuesday that group revenue for the period increased 40 percent year-over-year to 2.002 billion Danish krones ($348.6 million). Profits increased 29.6 percent DKK 438 million ($76.3 million).

The international company—which manufactures, distributes, retails and markets its branded jewelry—reported extremely strong increases in all regions of the world where it operates. Its regional breakdown for the first quarter is as follows:

* Americas: Up 38 percent (38.6 percent in local currency);
* Europe: Up 50.4 percent (50.6 percent in local currency); and
* Asia Pacific: Up 26.1 percent (27.7 percent in local currency).

The company noted that as it expected, gross margin fell to 65.6 percent for the period, compared to a gross margin of 71.6 percent in the first quarter of 2012. The company did not give a reason for this expected drop. 

“Although it is still early in the year, we have had a strong start,” said Pandora CEO Bjørn Gulden, who will leave the company at the end of the month to join sports brand Puma. “Revenue and earnings increased across all regions, positively impacted by the delivery of the Valentine's Day collection in Q1 2013, instead of, as historically, in the fourth quarter. Even more importantly, our sales-out in ‘Concept’ stores (branded stores owned by the company) has also strengthened with double digit growth in our four major markets. Some of this increase is due to the fact that Easter was in Q1 this year compared to Q2 last year, but we believe most of it is due to better products, improved marketing and better execution in the stores.”

The company’s financial guidance was unchanged from the prior quarter. It expects revenue of to be above DKK 7.2 billion ($1.25 billion) and expects an EBITDA margin above 25 percent.

Other highlights of the first quarter 2013 report

* EBITDA increased by 60.3 percent to DKK 643 million ($112 million), corresponding to an EBITDA margin of 32.1 percent, compared to an EBITDA margin of 28.2 percent in the first quarter of 2012.
 
* Free cash flow was DKK 406 million ($70.6 million), compared to DKK 118 million ($20.5 million) in the first quarter of 2012.
 
* Pandora bought back 398,153 shares corresponding to DKK 61 million ($10.6 million) as part of the on-going DKK 700 million ($121.8 million) share buyback program.
 
* Pandora expects to open approximately 150 Concept stores in 2013.

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