Pandora Raises Guidance on Q2 Revenues, Beats Market but Urges Caution
BERLIN — Second-quarter revenues at Danish jewelry brand Pandora were better than expected.
The brand saw organic growth of 5 percent during the second quarter and sales worth 5.89 billion Danish kroner, or $864 million, over the three months ending June 30. Revenues were 3 percent above market consensus.
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This brings the company’s revenues for the first half of this year to 11.75 billion Danish kroner, or $1.72 billion.
It also means that “we are outperforming the market,” Pandora’s chief executive officer Alexander Lacik said during an online conference announcing the results. “This is the fifth consecutive quarter where we have delivered solid results despite the weak macroeconomic background.”
On the back of the Q2 results, the Danish jewelry maker revised guidance upward for the second time this year. The company now anticipates positive growth of between 2 percent and 5 percent for the full year. At the beginning of this year, Pandora had predicted growth of somewhere between minus 3 percent to plus 3 percent.
The company now also intends to open between 75 and 125 new concept stories this year, an increase on the 50 to 100 previously planned.
But there was no “magic bullet” involved, Lacik explained, and there were also plenty of reasons to remain cautious.
“There are many different data sources but all of them are putting North America — and many of our other core markets — in a negative space,” Lacik said. “The triangulation we land at, is that we are doing less bad than the market. But there’s nothing magical about it. We are doing what we need to do, we are chugging along.”
Pandora initiated a new business strategy called Phoenix in May 2021 that is now bearing fruit, the executive said. Lacik also credited Pandora’s marketing activities, a focus on the brand’s “Moments” collection and improvements arising out of structural changes, such as a reorganization of the company’s sales team, for this year’s successes.
Plus, there was surprisingly high foot traffic into Pandora stores and outlets, he added.
“We believe this [result] is also driven by unexpectedly high traffic [compared] to what we normally see in the summer,” he continued. “Maybe people are cash-strapped, maybe they shortened their vacations, but there are more people walking into our stores everywhere and engaging with the brand.”
However, Lacik cautioned, Pandora believes this extra holiday shopping, possibly driven by domestic tourism, may well ease off toward the end of the third quarter.
That is also why the Pandora executives remained cautious. The third quarter had already started well for the jeweler but the suspicion that holiday traffic into stores would drop off eventually, combined with macroeconomic uncertainties and consumer caution was good reason to remain prudent, Lacik reported.
“The economic backdrop is less favorable for 2023 … particularly for the low-mid income households which form the foundation of Pandora’s customer base,” Royal Bank of Canada analyst Piral Dadhania confirmed, in a reaction to Pandora’s Q2 results.
“Q2 results show the company navigating a challenged U.S. market surprisingly well, with an incrementally stronger Europe proving a boost,” said Jefferies analyst Frederic Wild in a note following the release. “The stock has managed to navigate challenges in key markets relatively well, even as peers have struggled.”
The all-important U.S. territory has been difficult for Pandora due to consumer hesitancy. However, revenues improved sequentially in the U.S. this quarter, coming in at minus 4 percent and bringing in 1.834 billion Danish kroner, or $268 million. In Q1, U.S. revenues had stood at minus 7 percent and the shift represented “a small but important improvement,” Lacik explained.
It also indicated “the effectiveness of strategic initiatives” there, the company said in a statement. Mother’s Day and end-of-season sales had played a part in the positive movement as had product launches like the popular Little Mermaid series, the brand noted.
Pandora’s revenues remained stable in principal European markets, sitting on zero percent. German customers were the most enthusiastic with growth in that territory at 11 percent in Q2 compared to the same period last year.
This was balanced out by revenue decreases of 5 percent in both Italy and France, and zero percent growth in the United Kingdom. In total, the four European markets brought in 1.77 billion Danish kroner, or $259 million.
After three years of declines, Pandora was also finally seeing growth again in China again, Lacik said. Like-for-like comparisons were difficult because the Chinese market had been in lockdown during Q2 last year but Pandora recorded 5 percent growth there this quarter, totaling 156 million Danish kroner, or $23 million.
Last year Pandora relaunched the brand in China, in Beijing and Shanghai. “It’s very early days yet,” Lacik said, “but we have seen a pick-up in both store and online traffic in both cities. [China] will be a gradual journey for us,” he warned.
Asked whether Pandora might ever give up on the Chinese market altogether, Lacik answered that, “if this first pass doesn’t work, then we’ll try again. We won’t give up on China and we’ll figure out a way. There’s good business to be had there.”
Elsewhere, additional territories delivered strong broad-based growth of 12 percent for Pandora, with the brand seeing double-digit gains in Portugal, Peru, Poland, Austria and Turkey. Revenues in this category equaled 1.92 billion Danish kroner, or $282 million, over the second quarter.
Lacik believes that a new series of Pandora stores, called Evoke 2.0, have also been having a positive impact and will create more value. “The new store concept [will] elevate the brand, positioning Pandora as a full jewelry house,” he added. The first Evoke 2.0 store opened in Italy this year and another six will open over the third quarter.
There is a widening gap between sales in Pandora owned-and-operated stores and others in Q2, which worried the executive. “The underlying reason is quite straightforward,” Lacik explained. “Our franchise partners are often smaller businesses. They read the newspapers, they’re nervous about the macroeconomic situation, so they’re tight on their cash — which has an impact on the level of inventory and the amount of staff hours.”
Pandora is “in conversation” with these partners and is trying to help close that gap, Lacik said.
The company hopes that the ongoing rollout of its lab-grown diamond category, now named “Pandora Lab-grown Diamonds” to all stores in North America, as well as Australia, Mexico and Brazil, might also help. This will bring the number of doors carrying the lab-grown diamond category to 700.
The Danish brand’s strategy in the intensely competitive diamond market is a little different, Lacik explained. “A lot of the other players in that space go in with a high list price, then do deep discounting during the year,” he noted. “We have taken a different path where we have a very good price all year and we don’t promote. This means we are competitive 365 days a year.”
The addition of three new collections was about “putting a wide selection and very attractive value proposition to the audience that we already have in Pandora today,” Lacik told WWD. Feedback from customers had shown that, although they liked Pandora’s prices for diamonds and also enjoyed the brand’s narrative around the diamonds, the designs up until then had not appealed to everyone. “The new collection has a broader appeal,” Lacik argued.
The initial launch of the lab-grown diamonds had included just 36 designs. The new rollout will bring 57 new variations.
The current designs, now designated Pandora Infinity, will be joined by the Pandora Nova line, focusing on brilliant- and princess-cut diamonds with the introduction of a proprietary four-prong setting; Pandora Era on classic styles; and Pandora Talisman on five pendant designs nodding to the brand’s famous charms.
They will be unveiled in a new campaign featuring “a cast of cultural icons,” and commercially available from Aug. 29. Pandora recently announced “Emily in Paris” star Ashley Park as its latest global ambassador.
The Danish jeweler’s next capitals market day will be held in London on Oct. 5.
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