Pandora on Tuesday raised its revenue guidance for the second time this year after reporting a 37.5 percent jump in net profit in the second quarter, thanks to strong demand for its signature charms and other jewelry.
The Copenhagen-based jewelry brand said it now expects sales to top 16 billion kronor, or $2.35 billion at current exchange, versus a May forecast of 15 billion kronor, or $2.21 billion. Shares in Pandora closed up 4.7 percent at 815 kronor, or $119.63 at current exchange, on the Copenhagen Stock Exchange.
“We’re very satisfied with the result for the second quarter, both in terms of product and in terms of regions,” Anders Colding Friis, chief executive officer of Pandora, told WWD.
The group posted a net profit of 910 million kronor, or $135.8 million, in the second quarter. Its earnings before interest, taxes, depreciation and amortization margin rose to 36.4 percent from 35.1 percent a year ago, mainly due to an improved gross margin, thanks to factors including more favorable raw material prices and market mix.
Sales in the second quarter totaled 3.6 billion kronor, or $536 million, up 41.4 percent year-on-year. Stripping out the impact of exchange rate variations, revenues rose 25.8 percent.
Like-for-like growth accounted for 40 percent of the revenue increase, while network expansion contributed 60 percent. Pandora opened 107 new concept stores in the second quarter, in addition to e-commerce sites in the United States and Sweden.
The group is closing unbranded doors and plans to open more than 375 new concept stores in 2015, up from an earlier forecast of 325. At the end of the second quarter, the total number of points of sale was 9,562, a decrease of 484 compared with the prior year.
Pandora also announced it was strengthening its footprint in Asia through a deal with Norbreeze Group valued at around 149 million kronor, or $22 million, under which it will buy its store network in Singapore and Macau and reacquire distribution rights in the Philippines, effective Jan. 1.
The group is increasing its focus on the Asia-Pacific region, which accounted for 15.3 percent of revenues in the second quarter.
Excluding Australia, the region delivered growth of 52.5 percent during the period, mainly driven by positive developments in China and Hong Kong. Revenues from Hong Kong were up 50 percent after Pandora doubled the number of its concept stores there to 20 in the last 12 months.
Friis said Pandora now has 29 stores in Mainland China and expects to open a further 15 to 20 by year-end under its joint distribution agreement with Oracle Investment Limited, which came into effect on July 1. He declined to comment on the potential impact of Tuesday’s surprise devaluation of the Chinese yuan.
“We are comfortable with the development in China in general, and I think that you should see our commitment to China as a long-term commitment,” he said.
In the Americas, the group’s largest market by region, revenue increased 43.8 percent in the quarter, with U.S. growth fueled by the continued success of Pandora’s collaboration with Disney.
Sales in Europe jumped 38 percent, driven by the U.K., France and Italy.
However, revenue from Russia plummeted 40 percent as households continued to tighten their purse strings, prompting Pandora’s local distributor, PanClub, to scale back its buy. In a conference call with analysts, Friis predicted Russia would close the year with a drop in revenue of 25 to 50 percent.
Pandora continued its restructuring in Germany, where revenues grew just 2.8 percent in the quarter, impacted by a provision for returned goods of 53 million kronor, or $7.9 million, related to the closure of 275 multibrand accounts.
“We have over a number of years hurt our brand by an over-distribution in the German market,” Friis told analysts, noting it would take time to undo the damage. “Clearly with what we’re doing in Germany and the amount of effort and also money we’re putting into it, we do believe in the future of the German market,” he added.
Products launched in the last year accounted for 50 percent of global sales in the second quarter. Revenues from charms were up 44 percent, while rings saw a 39.9 percent jump. The latter proved popular with customers aged 18 to 25, below Pandora’s historical customer base of 25 to 45 year olds, the executive said.
“We see them returning and actually buying some of our charms and bracelets as well. For me, it’s very important but also encouraging to see that we can capture a younger audience, and we have a very broad group of people who are actually purchasing our products and interested in Pandora,” he told WWD.
The group paid out 642 million kronor, or $95.8 million, in the second quarter following a settlement with the Danish Tax Authorities on May 7 covering income tax and interests for the period between 2009 and 2014.
Provisions for the tax expenses sharply impacted its net profit in the first quarter, while the second-quarter payment resulted in a free cash flow deficit of 268 million kronor, or $40 million, during the period. The remaining amount due will be paid in the fourth quarter, Pandora said.
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