Heading Into Q4, Pandora Raises Prices on Select Items 4%
Announced during its Q3 earnings call, Pandora also spoke on its new lab-grown diamond jewelry line.
The company made both announcements during its third-quarter earnings call with investors, a quarter that saw the popular Danish bead brand hold the line on sales, sending its stock price up 8 percent in trading Tuesday.
Pandora’s Q3 sales totaled 5.26 billion Danish kroner ($712.4 million), up 1 percent when compared with the third quarter 2021 (3 percent on an organic basis), and a 13 percent increase compared with Q3 2019.
EBIT margin was 18.6 percent, down from 20.2 percent in the third quarter 2021.
In the U.S., Pandora’s sales slowed down as expected due in part to the lack of stimulus money, which supplemented consumers’ disposable income in 2021.
U.S. third-quarter sales sunk 9 percent compared with 2021 (3 percent on an organic basis) but were up 56 percent when compared with 2019.
The U.S. market was the test market for Pandora’s price increases, which were implemented in three stages beginning in the second quarter before going global in early October, CEO Alexander Lacik said on Tuesday’s earnings call.
After several years of cutting back on promotions, Pandora raised prices on items it identified as having a “more favorable elasticity profile;” specifically, gold-plated jewelry as well as jewelry that’s made in collaboration with another brand.
It did not raise prices on its entry-level items or “items of strategic importance.”
When asked by an analyst about the impact of higher prices so far, Lacik said it’s too early to tell.
He did note, however, that while the increases were implemented to drive revenue and profit, the company is wary of alienating customers, particularly potential new customers.
“We know in the past that customers react [to higher prices], and they react with their feet,” he said.
“It’s important that we allow people to come into the brand, then they have the opportunity to choose.”
Analysts also had numerous questions about the U.S. introduction of “Diamonds by Pandora,” the company’s new line of lab-grown diamond jewelry.
Lacik said the line has been “well received” in the market two months into its launch. The company will add a 2-carat lab-grown diamond option ahead of the holiday season.
Diamonds by Pandora is sold at 270 stores across North America, as well as online, representing 3 percent of the company’s share of total business in the market. In physical stores offering the collection, it accounts for 5 percent of business.
Lacik noted the Diamonds by Pandora consumer is so far skewing younger in the U.S. than in the United Kingdom.
Millennials and Gen X were the main customers for Pandora’s lab-grown diamond jewelry in the U.K., while millennials and Gen Z are making up the lion’s share of customers so far in the U.S.
He said millennials and Gen Z seem to be “more aware” of lab-grown diamonds and “much more open” to them than older customers.
Looking ahead to the remainder of the fiscal year, Lacik said the company is sticking with its guidance for the fiscal year, which calls for organic revenue growth of 4-6 percent.
“We don’t see a global recession creeping into our numbers yet.”
He said they do expect some financial impact from the fire that swept through its European distribution center in Hamburg, Germany, on Oct. 30, but expects any impact to be “manageable.”
There were no injuries or inventory damage in the blaze, and the team expects to have operations back to normal levels in the next few weeks.
Between these efforts and support from its distribution center in Thailand, Pandora expects to be “well prepared” with inventory for the holiday season.
In delivering his closing remarks on Tuesday’s call, Lacik noted he’s been asked by multiple journalists about what the future holds in light of the current uncertain macroeconomic and political climate.
He did not have an answer for them.
“I do not have a crystal ball,” he said. “As much as we wish we knew, we don’t know what the future holds for us, but we are ready to go.”
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