Pandora to Ease Back Into China as It Raises Full-year Guidance
PARIS — Pandora raised its guidance after a solid first quarter, but is planning to ease back into China.
Against a backdrop of rising inflation that has seen consumers in the middle market tightening their purse strings, “we remain confident of our prospects but equally mindful of the ongoing macroeconomic uncertainty,” president and chief executive officer Alexander Lacik said during a call Wednesday with analysts.
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The Danish jeweler is cautiously optimistic about the outlook for mainland China, a territory that represented around 5 percent of its business last year, he said. The country’s performance has improved since the January lifting of its COVID-19 restrictions, with trading returning to positive territory in late March.
Pandora is preparing for “a selected and gradual relaunch on a city-by-city basis” with a priority on repositioning the brand and investing in media to build awareness. One key to a successful return will be improving foot traffic, which is currently “slower to come back [to] where it needs to be,” Lacik said.
Overall, the jeweler reported resilient growth and solid margins in the first quarter, with investments in its product platforms paying off. “It’s clear that we are increasingly the jewelry brand of choice, particularly for gifting occasions,” Lacik said.
The company reported that organic sales grew 1 percent to 5.85 billion Danish kroner, or $864.9 million, in the three months to March 31, marking the fourth consecutive quarter of growth. Lacik hailed the single-digit increase as a sign of resilience in a turbulent market.
“The high-end jewelry market has been almost untouched by [macroeconomic turbulences] whereas the middle [market] where we live, and most consumers, of course, they have pressure on disposable income,” he told WWD.
As a whole, “more people [are] coming, they’re spending a little bit less than they used to, which I think is probably a reflection of the economic situation,” he continued. “But overall for us that means that we continue to put a little bit of growth on the table and [for] that we have to be very, very pleased because that most likely means I’m building market shares in most geographies around the world.”
According to RBC Capital Markets analyst Piral Dadhania, “these results are somewhat better than expected even if sources of revenue beat are surprising.”
Markets seemed more skeptical, with shares down 2.4 percent during midday trading at 614.80 Danish kroner, or $91.10, despite having risen briefly at the start of trading.
Pandora said it planned no further price increases, considering them only as a means to offset cost inflation — such as silver prices going north of $30 an ounce — to be used sparingly.
“Contrary to the high-end luxury brands that use pricing as a revenue driver, [leveraging it for growth] was not the intention when we did our pricing action,” Lacik said of the company’s decision to raise prices at the end of last year.
Buoyed by a number of tailwinds, the jeweler lifted its full-year guidance range for organic revenue growth for 2023 to minus 2 percent to plus 3 percent, versus minus 3 percent to plus 3 percent previously.
With trading in the second quarter that has “so far been resilient” heading into the key Mother’s Day period, the update in sales guidance reflected the jewelry brand’s confidence in its ability to navigate the current environment thanks to its geographical diversification and execution of its strategy.
Lacik said growth engines included the expansion of its distribution network, a continued focus on its product platforms, as well as geographic vectors, citing a record 2022 in Mexico and the strong performance of Germany.
The executive said Pandora would continue to build on brand pillars, given that 80 to 85 percent of business came from existing references and around 15 percent from new items overall.
Among designs with a long projected shelf life are the recently launched Studded Chain bracelet, but also lab-grown Diamonds by Pandora jewels, which now represent 1 percent of the business, equivalent to 34 million Danish kroner, or $5.04 million.
More classic ranges will be added to the diamond line in the third quarter of 2023, and the company said it would roll out the collection in new countries later in the year.
By geography, Europe’s performance was led by Germany and saw sequential improvement in most countries.
In the U.S., Pandora’s biggest market, revenues slipped 7 percent in line with last quarter’s performance, owing to mixed performance across channels and “slightly lower” conversion rates attributed to heightened consumer hesitancy.
“The big question is how much of the softness we see this year is also [due] to the recession, inflation, mortgage rates,” said Lacik, who expects the U.S. to continue underperforming for the rest of the year.
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