Pandora is taking advantage of another quarter of explosive growth to address weaknesses in its lagging U.S. business, with measures including store acquisitions and a partnership with The Walt Disney Co.
The Copenhagen-based jewelry firm again upped its full-year guidance on Tuesday after reporting that revenues jumped 31.7 percent to 2.54 billion Danish kroner, or $467.6 million, in the second quarter, driven by strong growth in Asia-Pacific, the U.K. and other European markets like France, Italy and Russia.
Net profit for the quarter was 662 million kroner, or $121.7 million, up 53.6 percent versus the same period a year earlier. Dollar amounts are calculated at average exchange rates for the period in question.
The company on Tuesday revealed a strategic alliance with Disney that includes the launch of a collection of Disney-themed sterling silver and gold charms in its concept stores and Disney locations in early November. The deal will also give Pandora a presence in Walt Disney World Resort and Disneyland Resort, beginning with the sponsorship of the Wishes Nighttime Spectacular at Magic Kingdom Park in Florida this fall.
Separately, Pandora said it has signed an agreement to acquire 27 concept stores from U.S. jeweler Hannoush for $29 million as part of ongoing efforts to refresh its retail network in the Northeast, which has been underperforming the rest of the country.
Allan Leighton, chief executive officer of Pandora, said the brand was adjusting its strategy in the U.S., which posted a 2.7 percent gain in revenues in the second quarter, versus 65.7 percent for Europe as a whole and 57 percent for the Asia-Pacific region.
The executive maintained his forecast that the U.S., Pandora’s biggest market accounting for 32.4 percent of total revenue in the quarter, will register like-for-like sales growth of 3 percent to 5 percent in 2014 as a whole.
Pandora will spend $6 million on remodeling the stores belonging to Hannoush, its biggest franchisee in the Northeast, in line with its Evolution concept. It intends to resell five of the concept stores located outside the region to existing franchise partners.
“I don’t mind taking a bit of sales pain for a couple of quarters to fix this,” noted Leighton. “The fact that the other markets are doing so well gives us the opportunity to just invest back a little bit into the U.S. to make sure strategically we get the growth opportunity which we fundamentally know is there to be had.”
He said the Disney licensing agreement was a 10-year exclusive. The initial launch, expected to roll out to stores in early November, will include 25 styles, with 16 more styles to be sold at Disney merchandise locations. The line will also be available in Pandora stores in Canada, Mexico, Puerto Rico, Central America and the Caribbean.
“A relationship of this description with Disney is a big signal of how the Pandora brand is seen around the world. We’re very excited about it and we think that is in retail terms a big opportunity for us,” said Leighton.
Tiffany Rende, senior vice president of Disney Corporate Alliances and Operating Participants, said it looked forward to additional opportunities ahead.
“In addition to debuting a new line of Pandora jewelry at retail level that we know will be a fan favorite, we are collaborating on other product lines and guest experiences at our domestic parks and resorts,” she said.
In the wake of the second-quarter results, Pandora raised its revenue guidance for 2014 to more than 11 billion kroner, or $2 billion at current exchange, versus the previous forecast of more than 10.5 billion kroner, or $1.9 billion. It left its earnings before interest, taxes, depreciation and amortization margin expectation unchanged at around 35 percent.
Leighton noted that the jewelry brand expects to invest “significantly” in infrastructure in the second half of the year. Pandora now expects to add more than 275 new concept stores in 2014, compared with previous plans to open more than 225, it said.
“We are branded, branded, branded, and really we are concept store, concept store, concept store. I mean, let’s not beat around the bush: Our concept stores, whether they be owner operated or franchise, are significantly outperforming everything — 47 percent growth in the quarter,” Leighton remarked.
In the second quarter, Pandora opened 16 concept stores in Russia, which continued to post good results despite tensions with neighboring Ukraine. “We’re definitely taking share, which is what we wanted to do with our investment, and we’ve still got good like-for-likes. But I think you can definitely see that the Russian consumer is more cautious, and that’s why I’m glad that we took the action that we did,” Leighton said.
In the U.K., where sales were up 60.1 percent in the quarter, the online store was performing well, he said.
“We continue to see low return rates and healthy conversion rates, and, as we see it, very limited cannibalization,” Leighton said. “I’ve always said that in my view there’s no reason why the online business shouldn’t be around 10 percent. The U.K. is heading in that direction.”
Its e-boutiques in Germany, Austria, France and the Netherlands were still in the development stages, he said, adding there were no plans as yet to introduce e-commerce in the United States.
All product categories posted good growth in the second quarter, in particular rings, which saw revenues jump 200 percent.
Pandora said Henrik Holmark would step down as chief financial officer on Jan. 1 to join Dr. Martens Airwair Group Ltd. as cfo and move with his family to London. He will be succeeded by Pandora’s senior vice president, head of finance Peter Vekslund.
Pandora made no reference to a lawsuit by a group of investors seeking compensation for losses suffered after the brand issued a profit warning in 2011. Its shares fell in late July after Belgian law firm Deminor, the legal representative of the group of 36 investors, made public the initiative.
Pandora shares closed up 8.3 percent at 413 kroner, or $75.56 at current exchange, on the Copenhagen Stock Exchange.
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