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Pandora Jewellery relaunch begins to pay dividends

Pandora’s launch last month of a limited-edition range of Star Wars-themed jewellery, designed in partnership with production company Lucasfilm, could be helping boost its share price on the Nasdaq Copenhagen.

For some time, short-sellers – investors who buy and sell a particular stock based on the prediction that its price will fall – had been circling Pandora as it struggled to regain its dominant presence in the international jewellery market.

In March, US-based financial publication Bloomberg reported that “short interest is rising as hedge funds have more money” and that the “hedge funds have been on the winning side of bets against jewellery maker Pandora.”

However, Bloomberg has since changed its tune, noting that when the funds finally stopped speculating against Pandora, “it was largely down to one strategic change”: a revamped communication strategy implemented by CEO Alexander Lacik, who joined Pandora in April 2019.

Last Friday, 6 November, Pandora shares closed at DKK538, a vast improvement from August 2019 when Pandora underwent an international brand re-launch – at which time its shares were trading at around DKK290.

It was only two years ago that Pandora lost market confidence.

» Background reading: Pandora: The beginning of the end?

The Financial Times reported in January 2018 that, “Danish-listed shares in fashion jewellery chain Pandora tumbled 15 per cent after it forecast margins would slip from 2018 onwards. It will miss its full-year earnings before interest, taxation, depreciation and amortisation margin guidance of 38 per cent by a smidgen.

“On top of that, its new margin target will be lower still: 35 per cent from now on, compared to the 37.3 per cent it expects to achieve for the 2017 financial year.”

Five months later, Bloomberg commented, “Pandora appears to be losing the confidence of key analysts and investors. Shares in the world’s biggest jewellery maker, which is based in Copenhagen, slumped more than 8 per cent at one point, dragging it down to its lowest market value since February 2015.”

In an interview, Lacik explained that when he first joined Pandora, he focused on revamping a communications strategy that had clearly failed.

“That’s what plagued Pandora,” he explained. “It’s like in a relationship: you promise something and then you have to keep that promise – not to over-promise and not to under-promise.”

According to Bloomberg, “Before Lacik joined, Pandora was gaining notoriety as a company that rarely lived up to the profit guidance it set. In 2018, the stock plunged 61 per cent, which came after a 27 per cent drop the previous year. Investors started to flee, and a CEO was fired. Meanwhile, hedge funds watched the value of their short positions soar.”

Lacik focused on marketing and advertising, as well as a continued push towards using high-profile social media influencers and celebrities such as Shakira, who joined Pandora as a spokesperson in January 2019.

Indeed, making Pandora “relevant” once more is a central goal of Programme NOW, the company’s long-term business strategy.

The Star Wars collaboration was announced in June and arrived in stores in October. In its most recent financial report, Pandora management noted that the collection was responsible for 9 per cent of the company’s global revenue in its first week.

The best-selling piece is a charm of ‘The Child’ – aka ‘Baby Yoda’ – the breakout character from the Disney+ series The Mandalorian which has become something of a cultural icon this year.

Under Lacik’s leadership, Pandora has also extended its Harry Potter collection – a consistent performer – as well as Pandora ME, a Gen Z-oriented range co-designed and promoted by Stranger Things star Millie Bobby Brown.

Lacik also committed resources to company’s digital capabilities.

On 3 November 2020, Pandora reported some interesting financial results, including “continued progress on the Programme NOW transformation and the underlying turnaround of the business” and “sell-out growth in Q3 of -2 per cent and organic growth was -5 per cent”.

Sell-out growth refers to the sell-thru of products at the retail channel while organic growth is natural sales increases, as product proves more popular with consumers.

Despite the pandemic and its associated store closures, revenue for the quarter was only 8 per cent below the same period in 2019.

At the same time, the company’s online sales had increased by 89 per cent, accounting for 21 per cent of revenue for the quarter.

On 8 November 2020, Bloomberg noted a turnaround in market sentiment: “Once among the most-shorted Nordic stocks, Pandora is now one of the region’s biggest corporate success stories. Its roughly 90 per cent share-price gain this year, despite a pandemic that’s pummelled retailers, makes it the best performer in Denmark’s world-beating benchmark stock index.”

On the way back

As previously reported by Jeweller: “While Pandora has had a topsy-turvy few years, its performance during the COVID-19 crisis under the leadership of Lacik seems to be paying off – at least for shareholders. However, whether it can also deliver results for its retail stockists in 2021 – and beyond – is still unknown.”

In the latest financial report, “The performance of Pandora’s wholesale partners has generally picked up during the third quarter and franchise concept stores are performing roughly in line with owned-and-operated concept stores. Pandora’s trade receivables from wholesale partners continued to develop satisfactorily in Q3 2020. The health of inventories continues to be good. In preparation for the peak trading period, inventory levels increased as planned during Q3.

“Sell-out growth for wholesale partners was generally in line with the performance of Pandora owned concept stores but organic growth for multi-brand partners and third-party distributors was impacted by a cautious inventory approach.”

The company has been closing the accounts of its independent retail stockists around the world for many years, first starting in 2011. The closure of more than 1,000 stores (450 US and 130 Canadian accounts were closed in 2016 alone) has significantly reduced its retail footprint to consumers.

Lacik, who describes himself as a ‘turnaround architect’, admitted in February this year that this stockist closure strategy may have been unwise indicating that Pandora might need to refocus on distribution to independent jewellery stores – the very businesses that it once discarded.

“There hasn’t been an awful lot of attention to multi-brand stores  [independent stockists] in the last few years. The push has been [company] owned and [franchise] operated stores. We have seen there are some opportunities that we have forgone by reducing the multi-brand presence so much. A lot of new customers might come through a multi-brand rather than a concept store,” he said.

Lacik’s candour – uncharacteristic of previous Pandora management – may well pay off.

The 8 November Bloomberg article states: “ATP, Denmark’s biggest pension fund, says the transparency that Lacik brought is a key reason why it has bought Pandora shares this year. At the end of the first half, it held 3.1 per cent of the company, according to the latest public record. Lacik says the underlying value that Pandora’s latest share-price gain reflects what ‘was always there’.”

Jeweller reported in late September that the future of Pandora is, ultimately, decided by the consumer. And in order to reassert its leadership of the international jewellery market, history shows Pandora must focus on two things: product design, and its distribution and reach to consumers.

The early success of its Star Wars collection – and the enthusiasm of investors – suggests the company is on the right track.

» More reading
Pandora burned short sellers, but ‘It’s not about vindication’
Pandora through the pandemic: a turnaround in the making?
No surprise, Pandora got it wrong

» Background reading
Pandora: The beginning of the end? July 2018
For Pandora, arrogance is a two-edged sword August 2018
Pandora - the charm before the storm? July 2019

» History
Birth of brand Pandora June 2008
The Pandora phenomenon October 2009

» Research
2020 State of the Industry Report July 2020
Pandora past its peak? July 2020

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