LONDON — Profit growth at Danish jeweler Pandora accelerated in the third quarter on the back of an 18 percent uptick in revenue and a strong performance in the world’s largest jewelry market: China.
The contemporary jeweler, known for its stackable rings and collectible beads and charms, is growing at a rate that would easily provoke envy among many hard luxury brands, which have been having a hard time selling watches in particular, especially in the Far East.
Profit at the Copenhagen-based firm climbed 40 percent to 1.41 billion Danish kronor, or $211 million, while revenue rose 18 percent to 4.61 billion kronor, or $692 million.
Growth came from all geographical regions, and from an increase in the volume of items sold both in existing and new stores.
The company said the fall collection, including the Pandora Rose line, made from a combination of metals made to resemble rose gold, was a hit. It will be launched in Asia-Pacific in October.
As a result of the third-quarter performance, the company raised its guidance for earnings before interest, taxes, depreciation and amortization, or EBITDA, for the full fiscal year.
The EBITDA margin is set to be around 39 percent, compared with more than 38 percent. Pandora said the revision is primarily based on a better-than-expected ability to cope with increasing production complexity, as well as marginally higher-than-expected operating leverage.
The news wasn’t enough to satisfy investors, however: Shares closed down 5.8 percent to 831 kronor, or $122.
In the three months to Sept. 30, the company said it opened 90 concept stores. It has more than 2,000 concept stores across 100 countries, which generate the bulk of sales.
Pandora sells through a mix of retail formats, including multibrand stores, e-commerce and branded shop-in-shops.
The company said in the third quarter, approximately 50 percent of revenue was generated by products that had launched over the last 12 months, similar to the corresponding period last year.
By region, revenue in the U.S. climbed 8 percent year-over-year, with growth was driven by the existing store network, as well as the addition of 31 new concept stores in the last 12 months.
In the same period, Pandora also closed a net 404 multibrand points of sale in the U.S., including 208 Jared stores. Pandora has upgraded to shop-in-shops at those points of sale.
Revenue in Europe, the Middle East and Africa was up 18 percent, with Italy notching 70 percent growth, and France 35 percent.
In Asia-Pacific, revenue grew 46 percent, primarily driven by a continued strong development in China and Australia.
Pandora said revenue in China represented around 30 percent of sales in the Asia-Pacific region, with sales increasing 120 percent year-over-year.
The company now has 81 stores in China, and last month launched on Alibaba’s Tmall.com. In December, Pandora said it expects to launch its own e-commerce store in China.
“China is an important market for Pandora, and it’s the world largest jewelry market,” said chief executive officer Anders Colding Friis, adding that the company was not just been focusing on tier one and tier two cities, but on stores spread across the country.
Revenue in Hong Kong increased 4 percent driven by expansion of the store network, which now includes 28 concept stores. Revenue from Hong Kong represented around 15 percent of revenue from Asia-Pacific.
Hong Kong is clearly delivering on the contemporary and premium front. By contrast, luxury sales – hard and soft – have been suffering in the region, due to lack of Mainland Chinese tourism and a government crackdown on gifting.
Friis added that the positive momentum from the first half has continued into the second, with double-digit growth across all product categories. He said improved profitability in the quarter was “driven by operational leverage, as well as by lower realized commodity prices.”
Sales growth is poised to accelerate even further.
The company noted that last month it opened its new production facility in Lamphun, close to Chiang Mai in northern Thailand. It will be ready to start commercial production at the start of 2017.
As part of the already-announced production capacity expansion program in Thailand, which will run until the end of 2019, Pandora has started the construction of an additional site in Gemopolis, named Triple A.
Approximately 12,000 of the 18,000 Pandora employees worldwide are located in Gemopolis, where the company manufactures its jewelry.
In addition to potentially doubling its production capacity in Thailand by the end of 2019, Pandora said it’s also aiming to shorten the general lead-time at the production facilities.
The company said it has now reduced the time from three to eight weeks to three to six weeks, with an ambition to reduce it to around four weeks, on average.