Earrings by Pandora

PARIS — Shares at Pandora fell 6.6 percent on Tuesday, despite delivering first-quarter results in line with estimates. Analysts attributed the cautious mood to a slowdown in sales in two crucial markets for the Copenhagen-based jewelry firm.

In the three-month period ended March 31, Pandora saw a 7 percent drop in sales in its main market, the United States, amid a challenging retail environment and continued decline in mall traffic, and a 2 percent uptick in sales in the United Kingdom, impacted by Brexit.

“That they maintained their outlook is positive but it does put pressure on improving performance in the second half of the year…There are hedge funds out there shortening the stock,” said Piral Dadhania, an analyst at RBC Europe Limited.

Pandora has been on a mission to reposition itself as a fully-fledged jewelry brand in order to rebalance the slowdown in its core category of affordable charm bracelets – which represent around 60 percent of the revenue mix – with other product categories like rings and earrings.

“[It] has not been enough to offset the slowdown, even if the other categories are growing at 40 percent-plus,” said Dadhania.

Pandora chief executive officer Anders Colding Friis told WWD that the strategy going forward lies in balancing the brand’s global presence, with Italy, France and China continuing to show strong sales growth.

The company saw a 44 percent uptick in the Asia-Pacific region, its fastest-growing territory, which now represents 25 percent of group revenues.

Pandora in the quarter also signed a distribution agreement with Pan India covering the Indian market. In April, it inaugurated its first concept store in the country, located in the Noida area of Delhi, with a total of 50 concept stores set to open there over the next three years.

“When you look at the growth we have in China – up 125 percent in the quarter [in local currency], and now representing 25 percent of our total revenue – it’s a good strategy to have, not being dependent on a single market,” said Colding Friis.

Rings, earrings, necklaces and pendants all grew more than 40 percent in the quarter, with the three categories now representing 25 percent of group revenues.

Group sales during the period rose 9 percent to 5.15 billion Danish kronor, or $742 million, in line with the company’s forecast of high single-digit growth. Net profit rose 4.1 percent to 1.36 billion Danish kronor, or $195 million, versus 1.31 billion Danish kronor, or $189 million, in the equivalent year-ago period.

Impacted by headwinds from currency and product mix, the group’s gross margin — a key indicator of profitability — narrowed to 73.3 percent from 74.6 percent in the same year-ago period.

Operating profit, or EBIT, was up 4 percent to 1.72 billion Danish kronor, or $247 million, compared to the first quarter of 2016, resulting in an EBIT margin of 33.3 percent.

Maintaining its full-year guidance, Pandora said it still sees group revenues of 23 to 24 billion Danish kronor, or $3.37 billion to $3.52 billion, in 2017 and an earnings before interest, taxes, depreciation and amortization margin of approximately 38 percent.

Dollar figures are converted at average exchange rates for the period to which they refer.

The company, which designs and develops its products in Denmark and manufactures them in Thailand, in the quarter opened a second crafting facility in Thailand, billed as the first part of Pandora’s capacity extension program.

The aim by 2019 is to grow production capacity to double that of 2015, to 200 million units annually. Pandora with its new site also aims to reduce lead times from the current six weeks to four weeks.

In line with its shift away from wholesale distribution to developing its own retail network, the company in the quarter opened 62 Pandora-owned concept stores, including 19 in China, the world’s biggest jewelry market, and closed down 300 points of sale.

The firm plans to open more than 275 stores in 2017, half of which will be operated by Pandora and half franchised, Colding Friis said.

Pandora will also take over distribution in South Africa and Belgium from July 2017, adding around 30 Pandora-owned concept stores to the network.

First quarter revenues from Pandora-owned stores and Pandora-owned concept stores rose 39 percent and 46 percent, respectively, to 1.96 billion and 1.84 billion Danish kronor, or $282 million and $265 million. Wholesale revenues dipped 7 percent to 2.72 billion Danish kronor, or $392 million.

Revenues from Pandora e-stores increased 63 percent to 30.4 million Danish kronor, or $43.74 million, driven by the U.S. and the company’s online introduction in China in the final quarter of 2016. E-commerce represented 6 percent of total revenues for the quarter, versus 4 percent in the equivalent year-ago period.

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