PARIS — Buoyed by ongoing strong performance in the U.S. and an uptick in Europe, Pandora continues to rebound.
The Danish jewelry-maker logged organic sales growth of 9 percent in the three months to Sept. 30, compared with the same period in 2019, and up 14 percent versus the third quarter of 2020.
Based on this — and signs that growth continues Stateside despite a lesser effect from stimulus measures that boosted growth in the first half — the company has updated its guidance for the year as a whole, now anticipating organic sales gains of between 18 and 20 percent, compared with previous guidance of between 16 and 18 percent, and EBIT margin of between 24 and 24.5 percent, up from between 23 and 24 percent.
“The U.S. jewelry market continued to grow at an unusually high rate, supported by stimulus programs,” said Alexander Lacik, Pandora’s chief executive officer, during a conference call with analysts Wednesday morning. “Importantly though, Pandora continues to grow at an even higher clip, like we have done in the past couple of quarters. On that basis, we continue to believe that we are gaining market share.”
In the U.S., its biggest market, the company reported sell-out growth of 59 percent for the third quarter, compared with the three-month period in 2019. On a reported basis, U.S. sales grew 48.9 percent to 1.43 billion Danish kronor, or $222.8 million at current exchange, versus the same period a year ago.
“Let’s see how the U.S. plays out; we still have the big weeks ahead of us. Even though we are a third calendar-wise into the fourth quarter, we still have 85 percent of trading in the quarter ahead of us,” said executive vice president and chief financial officer Anders Boyer.
“The stimulus checks are now gone, and at one point, we expect this to come through somehow, but when is a question, and October still holds up.”
Commenting on the company’s overall performance, RBC Capital Markets analyst Piral Dadhania wrote in a research note, “The key ingredients are in place to deliver positive revenue and earnings growth, including a higher-quality management team with relevant experience, upgraded corporate structure and invested capabilities, brand positioning, which is much improved since relaunch in September 2019, and a go-to-market strategy that is clear in its objectives. We also flag a more difficult base of comparison and removal of government stimulus, which will test the operating model and management’s resolve, in our view.”
Nevertheless, Lacik was upbeat. “Competitive activity is picking up as market conditions stabilize. Despite this, we deliver strong growth, our model is working,” he asserted.
As well as its strong gains in the U.S., the company also saw sales rebound in Europe after continued declines in the first six months of the year, with sell-out growth of 11 percent compared with the same quarter two years ago.
“This is particularly pleasing as it’s been done with significantly less price promotions,” Lacik said. Pandora has made reducing promotional activity a key part of its turnaround efforts.
By way of comparison, European sales fell 6 percent in the second quarter and 17 percent in the first three months of the year.
For the three months to September, sales in the U.K., Pandora’s second-largest market, grew 3.2 percent to 637 million Danish kronor, or $99.25 million, versus the same period a year ago, on a reported basis. Its sell-out growth compared with the same period in 2019 stood at 12 percent. In Italy, sell-out growth compared with 2019 was 10 percent and in Germany, it was 30 percent. French sales were down, by 6 percent versus the same period in 2019, on a sell-out basis, hampered by less promotional activity and consumers’ reluctance to shop in malls where a vaccine pass is mandatory.
On another down note, performance in Asia-Pacific remained weak, and was heavily impacted by COVID-19, the company said, especially in China and Australia, the company’s biggest markets in the region.
In China, which accounted for 5 percent of Pandora’s sales for the quarter and is key to its new Phoenix growth plan laid out in September, sell-out declined 45 percent versus the third quarter of 2019, negatively impacted by the typhoons of July followed by COVID-19 outbreaks, with store traffic for the quarter down 70 percent and online sales not compensating for the decline.
On a reported basis, the company’s Chinese revenues dropped 33 percent to 233 million Danish kronor, or $36.3 million.
The company expects the country to continue to weigh on its overall performance for the rest of the year.
“We came out of June and the 6.18 activity quite confident,” Lacik said. “We had a very good execution and we had lined up a quite heavy extra investment for the second half, and then typhoons and COVID-19 completely changed the picture.”
While Pandora remains on track with its plans to reposition in China during the second half, it said it would postpone its planned media investment of 200 million Danish kronor — or $31.2 million — into 2022, halving the amount it will invest this year. “Seventy percent lower traffic into the physical stores is not a particularly viable place to start overinvesting in marketing because we don’t get the traffic coming through the doors,” Lacik explained.
He said that while in the current context, the ambition to triple Pandora’s sales in China in the mid-term looks more challenging than it did just a couple of months back, the market is also showing positive signs; it became the number-one fashion jewelry brand on Tmall in the third quarter, and activity ahead of the all-important 11.11 [Singles’ Day] sales period “looks very promising,” Lacik said.
Globally, the company’s e-commerce sales jumped by 94 percent on an organic basis compared with the third quarter of 2019 and by 2 percent versus a year ago, and represented 18 percent of revenues for the period. “As stores reopen and consumers return, the online share of revenue is starting to normalize, but it is encouraging to see online revenue stay at a high level,” the company said.
On a reported basis, Pandora saw total sales growth of 16 percent compared with the third quarter of last year, to 4.73 billion Danish kronor, or $737 million. Its operating profit grew 104.9 percent to 957 million Danish kronor, or $149.1 million.
Its biggest platform, Moments, saw sell-out growth of 11 percent versus the same period in 2019. Its performance in the third quarter was supported by the launch of new wearables like key rings and bag holders, reengaging existing consumers with the brand, the company said, and creating a halo effect for other products.
While gross margin for the third quarter was hampered by one-off costs in Thailand related to the pandemic — the company had to take on temporary staff to secure supply while permanent staff were in self-isolation, notably — and higher silver prices, Lacik sought to reassure the market as to securing supply for the short term. “Despite COVID-19, our production in Thailand and our ability to meet demand have not been significantly impacted,” he said.
Looking ahead, among other initiatives announced under Phoenix, the company has high hopes for its Pandora Me line for younger consumers, which relaunched at the end of September, and confirmed plans to roll out Pandora Brilliance, its collection of lab-created diamond jewelry, starting next year.
Launched in the U.K. in May, the collection — which commands significantly higher price points than Pandora’s core offer — accounted for 2 percent of sales in that market in the third quarter. “If the U.K. is any indication, we got to 3 to 4 percentage points in the top stores in the first two months,” Lacik said. Specific launch plans will be revealed at a later date, he said.