Financials

Pandora’s Q4 Results Suffer as Weak Sales in China Take A Toll

FinancialsFeb 04, 2020

Pandora’s Q4 Results Suffer as Weak Sales in China Take A Toll

CEO Alexander Lacik told Reuters the jeweler’s business in China is in “standstill mode” as a result of the coronavirus.

20200204_Pandora_bracelet.jpg
Sales of Pandora’s charms were down 6 percent year-over-year in 2019.

Copenhagen, Denmark—Pandora had a rough fourth quarter as weak sales in China and the cost of its brand relaunch weighed on its balance sheet but remains hopeful its turnaround plan is working.

In an interview with Reuters, CEO Alexander Lacik was frank about the “unprecedented” drop in the jeweler’s business in China as a result of the coronavirus, which has caused 400 casualties so far.

“As I sit here and watch the Chinese business, it is in a standstill mode, I mean there’s pennies being sold,” said Lacik.

He said 70 of its 240 stores in China have been closed by order of the government and customer traffic at its open stores “is next to none.”

Quarterly like-for-like sales dipped 4 percent year-over-year, but Pandora highlighted it as an improvement compared with the 7 percent drop in 2018.

Like-for-like represents true comparable sales out of stores that have been open for at least a year, excluding currency fluctuations.

For the full year, like-for-like sales were down 8 percent.

The numbers were in-line with those Pandora had announced in its preliminary financial results in January.

The company noted Italy, France, and Germany, three of its seven largest markets, showed improvement in like-for-like sales, while growth in the U.S. and U.K. also improved.

Pandora has completed the first year of Programme Now, its two-year turnaround plan, and points to the improvements as evidence that Pandora “is on the right path to return to sustainable growth.”

Fourth-quarter

revenue totaled 7.96 billion Danish kroner ($1.18 billion), up 1 percent compared with 7.89 billion kroner ($1.17 billion) in the fourth quarter last year.

Nigel Frith, a senior market analyst at AskTraders.com, pointed to Pandora’s improvement in fourth-quarter sales as “evidence that attempts to turn the fashion jewelry retailer around are starting to pay off.”

Full-year revenue clocked in at 21.87 billion Danish kroner ($3.23 billion), down 4 percent compared with 22.81 billion Danish kroner ($3.37 billion) in 2018.

By region, full-year revenue in the Americas totaled 6.77 billion Danish kroner ($1 billion), down 1 percent compared with 6.81 billion Danish kroner ($1 billion) in 2018.

Sales in Asia-Pacific were down 9 percent year-over-year to 4.36 billion Danish kroner ($644.3 million) while sales in Europe, the Middle East, and Africa dipped 4 percent to 10.74 billion Danish kroner ($1.59 billion).

By sales channel, its physical stores brought in 11.4 billion Danish kroner ($1.68 billion), an 8 percent increase year-over-year.

Online sales totaled 2.78 billion Danish kroner ($410.8 million), up 21 percent year-over-year.

Wholesale revenue totaled 7.69 billion Danish kroner ($1.14 billion), down 22 percent year-over-year.

By product category, sales of charms were down 6 percent year-over-year while bracelet sales dipped 4 percent.

Ring sales were down 2 percent while earrings sales were up less than 1 percent.

The sole gainer was the necklaces and pendants category, up 2 percent year-over-year.

Pandora recently introduced the O pendant, which allows customers to wear their Pandora charms on a necklace or clip them onto bags or jeans.

Quarterly organic growth—sales into stores (sell-in) plus sales from newly opened stores (also excluding currency fluctuations)—was down 1 percent, the same as the Q4 2018.

For the full year, organic growth was down 8 percent.

“In 2020, we will continue to invest significantly to drive the topline, strengthen our organizational capabilities and pursue further cost reductions to fund our growth initiatives,” said CEO Lacik.

Looking ahead, Pandora expects its like-for-like sales to improve from its 8 percent dip in 2019 to a negative “mid-single-digit” in 2020 while organic growth is expected to be down 3 to 6 percent.

The company said the like-for-like development in 2020 is a result of further reduction of its promotional discounts, an expected weak underlying performance in China, and an underlying improvement in performance in the majority of its other markets.

Pandora noted its guidance does not include any impact from the coronavirus situation in China.

Analyst Frith said spending in the key markets of China and Hong Kong are expected to be significantly lower than previous years.

“For Pandora, as well as many retailers with a presence in China and Hong Kong, the outlook for the year depends greatly on how the coronavirus epidemic unfolds and, of course, whether cases start to ramp up in Europe and the U.S. where up to now cases have been few,” noted Frith.

The jeweler said it will continue to open stores in “white-space areas,” meaning places where it believes there are unmet needs the company could fulfill.

Pandora said it plans to invest in its online channel while also considering “use of additional online marketplaces.”

There are 2,770 Pandora stores as of Feb. 4, 65 more than in 2018.
Lenore Fedowis the associate editor, news at National Jeweler, covering the retail beat and the business side of jewelry.

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